Citation

Discussion Paper Details

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Title: Leaning against the wind and crisis risk

Author(s): Moritz Schularick, Lucas Ter Steege and Felix Ward

Publication Date: May 2020

Keyword(s): Financial Stability, local projections and monetary policy

Programme Area(s): Economic History, Financial Economics, International Macroeconomics and Finance and Monetary Economics and Fluctuations

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 19th 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.

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Bibliographic Reference

Schularick, M, Ter Steege, L and Ward, F. 2020. 'Leaning against the wind and crisis risk'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14797