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Financial stability and interest‐rate policy: A quantitative assessment of costs and benefit

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  • Stefan Laséen
  • Andrea Pescatori

Abstract

Should monetary policy use its short‐term policy rate to stabilize the growth in household credit and housing prices with the aim of promoting financial stability? We ask this question for the case of Canada. We find that, to a first approximation, the answer is no. Résumé. Stabilité financière et politique de taux d’intérêt: évaluation quantitative des coûts et des avantages. Afin de favoriser la stabilité financière, la politique monétaire devrait‐elle utiliser son taux directeur à court terme pour équilibrer la croissance de l’endettement des ménages et du prix des logements ? Nous posons cette question pour le Canada. Dans une première approximation, notre réponse est négative.

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  • Stefan Laséen & Andrea Pescatori, 2020. "Financial stability and interest‐rate policy: A quantitative assessment of costs and benefit," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1246-1273, August.
    • Handle: RePEc:wly:canjec:v:53:y:2020:i:3:p:1246-1273
    DOI: 10.1111/caje.12458
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    1. Stefan Laséen & Andrea Pescatori, 2020. "Financial stability and interest‐rate policy: A quantitative assessment of costs and benefit," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1246-1273, August.
    2. Ragna Alstadheim & Ørjan Robstad & Nikka Husom Vonen, 2017. "Financial imbalances, crisis probability and monetary policy in Norway," Working Paper 2017/21, Norges Bank.
    3. Benati, Luca, 2023. "Exploring the trade-off between leaning against credit and stabilizing economic activity," Economics Letters, Elsevier, vol. 223(C).
    4. Laséen, Stefan, 2020. "Monetary Policy Surprises, Central Bank Information Shocks, and Economic Activity in a Small Open Economy," Working Paper Series 396, Sveriges Riksbank (Central Bank of Sweden).
    5. Uwe Vollmer, 2022. "Monetary policy or macroprudential policies: What can tame the cycles?," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1510-1538, December.
    6. Mr. Andrea Pescatori & Mr. Juan Sole, 2016. "Credit, Securitization and Monetary Policy: Watch Out for Unintended Consequences," IMF Working Papers 2016/076, International Monetary Fund.
    7. Warapong Wongwachara & Bovonvich Jindarak & Nuwat Nookhwun & Sophon Tunyavetchakit & Chutipha Klungjaturavet, 2018. "Integrating Monetary Policy and Financial Stability: A New Framework," PIER Discussion Papers 100, Puey Ungphakorn Institute for Economic Research.

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