Discussion paper

DP14797 Leaning against the wind and crisis risk

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.


Schularick, M, L ter Steege and F Ward (2020), ‘DP14797 Leaning against the wind and crisis risk‘, CEPR Discussion Paper No. 14797. CEPR Press, Paris & London. https://cepr.org/publications/dp14797