Loose Monetary Policy and Financial Instability /
Maximilian Grimm, Ņscar Jordą, Moritz Schularick, Alan M. Taylor.
- Cambridge, Mass. National Bureau of Economic Research 2023.
- 1 online resource: illustrations (black and white);
- NBER working paper series no. w30958 .
- Working Paper Series (National Bureau of Economic Research) no. w30958. .
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.
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Interest Rates: Determination, Term Structure, and Effects Financial Markets and the Macroeconomy Monetary Policy Central Banks and Their Policies Financial Crises Banks • Depository Institutions • Micro Finance Institutions • Mortgages General, International, or Comparative