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• The financial and economic crisis has taught central banks a lesson. They were previously primarily concerned with maintaining price stability, but the crisis has produced evidence to show that monetary policy can contribute to the development (or the mitigation) of systemic risk in the financial sector. Monetary policy therefore needs to take financial stability implications into account, and the macroeconomic implications of bank supervision and regulation must also be considered. • It is therefore important to understand the linkages between financial risk, monetary policy and the business cycle. This paper considers the thinking to date on risk taking in monetary policy, presents comparative evidence for the euro area and the United States, and interprets the evidence using a macro dynamic stochastic general equilibrium model. • This approach produces three preliminary conclusions: central banks ' monetary policy approaches affect, with time lags, the propensity of financial markets and banks to assume risk; it is possible to take account of these effects through macroeconomic models that embody optimising agents with limited information and include explicitly banking and financial sectors; and there is some indication that the modelling done in the paper can be used as the basis for predicting the relationship between monetary policy and the effect of risk on macroeconomic variables, though this area needs considerable further research. * Visiting Scholar at Bruegel and advisor to the Executiv