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Seminar

Leaning against the Wind: The Evidence

  • Location
    Erasmus University, Polak Building, Room 3-09
    Rotterdam
  • Date and time

    September 04, 2019
    12:00 - 13:00

Abstract:

Should monetary policy lean against credit and asset price booms to safeguard financial stability? This paper analyzes how monetary policy affects financial stability based on a cross-country dataset spanning nearly 150 years. We find that contractionary monetary policy increases crisis risk in the short-term. It does so despite its success at reining in credit and asset prices. Furthermore, we find that the short-term increase in crisis risk is not recompensed by lower crisis risk further ahead. Perhaps surprisingly, this raises the prospect that monetary policy makers lean with the wind to diffuse crisis risk in the short-term.

Joint work with Moritz

Schularick and Lucas ter Steege.