Loose Monetary Policy and Financial Instability / Maximilian Grimm, Òscar Jordà, Moritz Schularick, Alan M. Taylor.

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Grimm, Maximilian

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w30958.Publication details: Cambridge, Mass. National Bureau of Economic Research 2023.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill this gap by analyzing long-run historical data. We find that when the stance of monetary policy is accommodative over an extended period, the likelihood of financial turmoil down the road increases considerably. We investigate the causal pathways that lead to this result and argue that credit creation and asset price overheating are important intermediating channels.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w30958 (Browse shelf(Opens below))	Not For Loan

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February 2023.

Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill this gap by analyzing long-run historical data. We find that when the stance of monetary policy is accommodative over an extended period, the likelihood of financial turmoil down the road increases considerably. We investigate the causal pathways that lead to this result and argue that credit creation and asset price overheating are important intermediating channels.