Leaning against the Wind and Crisis Risk
American Economic Review: Insights
vol. 3,
no. 2, June 2021
(pp. 199-214)
Abstract
Can central banks defuse rising stability risks in financial booms by leaning against the wind with higher interest rates? This paper studies the state-dependent effects of monetary policy on financial crisis risk. Based on the near-universe of advanced economy financial cycles since the nineteenth century, we show that discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them.Citation
Schularick, Moritz, Lucas ter Steege, and Felix Ward. 2021. "Leaning against the Wind and Crisis Risk." American Economic Review: Insights, 3 (2): 199-214. DOI: 10.1257/aeri.20200310Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- F33 International Monetary Arrangements and Institutions