The macro risk premium measures the threshold return for real activity that receives funding from savers. We base our … argument in this paper on the relationship between the macro risk premium and the growth of financial intermediaries' balance … sheets. The spare capacity of their balance sheets determines the intermediaries' risk appetite, which in turn determines the …

intermediaries drive the business cycle by way of their role in determining the price of risk. In this framework, balance sheet … quantities emerge as a key indicator of risk appetite and hence of the "risk-taking channel" of monetary policy. We document …