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Leaning against the Wind and Crisis Risk

Author

Listed:
  • Moritz Schularick

    (Universität Bonn = University of Bonn, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Lucas ter Steege
  • Felix Ward

    (Tinbergen Institute - Tinbergen Institute)

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 nineteenth 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.

Suggested Citation

  • Moritz Schularick & Lucas ter Steege & Felix Ward, 2021. "Leaning against the Wind and Crisis Risk," Sciences Po Economics Publications (main) hal-03944470, HAL.
    • Handle: RePEc:hal:spmain:hal-03944470
    DOI: 10.1257/aeri.20200310
    as

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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