Journal Article

Leaning against the Wind and Crisis Risk

Authors

  • Moritz Schularick
  • Lucas ter Steege
  • Felix Ward
Publication Date

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.

Kiel Institute Expert

Info

JEL Classification
E43, E44, E52, E58, F33
DOI
10.1257/aeri.20200310

Key Words

  • Financial Crises
  • Interest Rates
  • Monetary Policy