Ebooks for the Classroom+Faculty

Cost-Benefit Analysis of Leaning Against the Wind : Are Costs Larger Also with Less Effective Macroprudential Policy?
ISBN: 9781513549606
Platform/Publisher: Ebook Central / INTERNATIONAL MONETARY FUND
Digital rights: Users: Unlimited; Printing: Limited; Download: 7 Days at a Time
Subjects: Business/ Management; Economics;

"Leaning against the wind" (LAW) with a higher monetary policy interest rate may have benefits in terms of lower real debt growth and associated lower probability of a financial crisis but has costs in terms of higher unemployment and lower inflation, importantly including a higher cost of a crisis when the economy is weaker. For existing empirical estimates, costs exceed benefits by a substantial margin, even if monetary policy is nonneutral and permanently affects real debt. Somewhat surprisingly, less effective macroprudential policy and generally a credit boom, with resulting higher probability, severity, or duration of a crisis, increases costs of LAW more than benefits, thus further strengthening the strong case against LAW.