IDEAS home Printed from https://ideas.repec.org/p/fip/feddgw/34.html
   My bibliography  Save this paper

Should monetary policy "lean or clean"?

Author

Listed:
  • White, William R.

Abstract

It has been contended by many in the central banking community that monetary policy would not be effective in "leaning" against the upswing of a credit cycle (the boom) but that lower interest rates would be effective in "cleaning" up (the bust) afterwards. In this paper, these two propositions (can't lean, but can clean) are examined and found seriously deficient. In particular, it is contended in this paper that monetary policies designed solely to deal with short term problems of insufficient demand could make medium term problems worse by encouraging a buildup of debt that cannot be sustained over time. The conclusion reached is that monetary policy should be more focused on "preemptive tightening" to moderate credit bubbles than on "preemptive easing" to deal with the after effects. There is a need for a new macrofinancial stability framework that would use both regulatory and monetary instruments to resist credit bubbles and thus promote sustainable economic growth over time.

Suggested Citation

  • White, William R., 2009. "Should monetary policy "lean or clean"?," Globalization and Monetary Policy Institute Working Paper 34, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:34
    Note: Published as: White, William R. (2009), "Should Monetary Policy Lean or Clean: A Reassessment," Central Banking 19 (4): 32-42.
    as

    Download full text from publisher

    File URL: http://dallasfed.org/assets/documents/institute/wpapers/2009/0034.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mishkin, Frederic S., 2017. "Rethinking monetary policy after the crisis," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 252-274.
    2. Andrew Filardo & Hans Genberg, 2010. "Monetary Policy Strategies in the Asia and Pacific Region: What Way Forward?," Working Papers id:3139, eSocialSciences.
    3. Drobyshevsky, S. & Trunin, P., 2014. "The Evolution of Theory and Practice of Monetary Policy as a Result of the Global Economic Crisis," Journal of the New Economic Association, New Economic Association, vol. 24(4), pages 141-158.
    4. Cukierman, Alex, 2013. "Monetary policy and institutions before, during, and after the global financial crisis," Journal of Financial Stability, Elsevier, vol. 9(3), pages 373-384.
    5. Ravn, Søren Hove, 2014. "Asymmetric monetary policy towards the stock market: A DSGE approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 24-41.
    6. Orlowski, Lucjan T., 2012. "Financial crisis and extreme market risks: Evidence from Europe," Review of Financial Economics, Elsevier, vol. 21(3), pages 120-130.
    7. Blot, Christophe & Creel, Jérôme & Hubert, Paul & Labondance, Fabien & Saraceno, Francesco, 2015. "Assessing the link between price and financial stability," Journal of Financial Stability, Elsevier, vol. 16(C), pages 71-88.
    8. Lukáš Pfeifer & Zdeněk Pikhart, 2014. "Vztah finanční a cenové stability v podmínkách ČR
      [The Relationship of Financial and Price Stability in the Context of the Czech Republic]
      ," Politická ekonomie, University of Economics, Prague, vol. 2014(1), pages 49-66.
    9. Gilles, Philippe & Huchet, Nicolas & Gauvin, Marie-Sophie, 2012. "Politique monétaire, choix de portefeuille du secteur bancaire et canal de la prise de risque," L'Actualité Economique, Société Canadienne de Science Economique, vol. 88(2), pages 175-196, Juin.
    10. Choi, Dong Boem & Choi, Hyun-Soo, 2016. "The effect of monetary policy on bank wholesale funding," Staff Reports 759, Federal Reserve Bank of New York, revised 01 Apr 2017.
    11. Mara Pirovano, 2013. "Household and firm leverage, capital flows and monetary policy in a small open economy," Working Paper Research 246, National Bank of Belgium.
    12. repec:eee:jimfin:v:77:y:2017:i:c:p:117-142 is not listed on IDEAS
    13. Kowalski, Tadeusz & Shachmurove, Yochanan, 2014. "The reaction of the U.S. and the European Monetary Union to recent global financial crises," Global Finance Journal, Elsevier, vol. 25(1), pages 27-47.
    14. van Holle, Frederiek, 2017. "Essays in empirical finance and monetary policy," Other publications TiSEM 30d11a4b-7bc9-4c81-ad24-5, Tilburg University, School of Economics and Management.
    15. Mark J. Carney, 2009. "Commentary: using monetary policy to stabilize economic activity," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-311.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:feddgw:34. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Chapman). General contact details of provider: http://edirc.repec.org/data/frbdaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.