| Author | : Mr.Lars E. O. Svensson |
| File Size | : 40,6 Mb |
| Publisher | : International Monetary Fund |
| Language | : English |
| Release Date | : 11 January 2016 |
| ISBN | : 9781498310734 |
| Pages | : 76 pages |
Cost Benefit Analysis of Leaning Against the Wind by Mr.Lars E. O. Svensson Book PDF Summary
“Leaning against the wind” (LAW) with a higher monetary policy interest rate may have benefits in terms of lower real debt growth and associated lower probability of a financial crisis but has costs in terms of higher unemployment and lower inflation, importantly including a higher cost of a crisis when the economy is weaker. For existing empirical estimates, costs exceed benefits by a substantial margin, even if monetary policy is nonneutral and permanently affects real debt. Somewhat surprisingly, less effective macroprudential policy and generally a credit boom, with resulting higher probability, severity, or duration of a crisis, increases costs of LAW more than benefits, thus further strengthening the strong case against LAW.
