Journal Article

Leaning against the Wind and Crisis Risk


  • Schularick
  • M.
  • Steege
  • L.t.
  • Ward
  • F.
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


JEL Classification
E43, E44, E52, E58, F33

Key Words

  • Financial Crises
  • Interest Rates
  • Monetary Policy