Leaning Against The Wind And The Timing Of Monetary Policy
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Leaning Against The Wind And The Timing Of Monetary Policy
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Author : Mr.Itai Agur
language : en
Publisher: International Monetary Fund
Release Date : 2013-04-03
Leaning Against The Wind And The Timing Of Monetary Policy written by Mr.Itai Agur and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-04-03 with Business & Economics categories.
If monetary policy is to aim also at financial stability, how would it change? To analyze this question, this paper develops a general-form framework. Financial stability objectives are shown to make monetary policy more aggressive: in reaction to negative shocks, cuts are deeper but shorter-lived than otherwise. By keeping cuts brief, monetary policy tightens as soon as bank risk appetite heats up. Within this shorter time span, cuts must then be deeper than otherwise to also achieve standard objectives. Finally, we analyze how robust this result is to the presence of a bank regulatory tool, and provide a parameterized example.
Leaning Against The Wind And The Timing Of Monetary Policy
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Author : Itai Agur
language : en
Publisher:
Release Date : 2011
Leaning Against The Wind And The Timing Of Monetary Policy written by Itai Agur and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
Leaning Against The Wind When Credit Bites Back
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Author : Karsten R. Gerdrup
language : en
Publisher:
Release Date : 2016
Leaning Against The Wind When Credit Bites Back written by Karsten R. Gerdrup and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This paper analyzes the cost-benefit trade-off of leaning against the wind (LAW) in monetary policy. Our starting point is a New Keynesian Markov-switching model where the economy can be in a normal state or in a crisis state. The set-up enables us to weigh benefits against costs for different systematic LAW policies. We find that the benefits of LAW in terms of a lower frequency of severe financial recessions exceed costs in terms of higher volatility in output and in inflation in normal times when i) agents underestimate crisis risk, and ii) the severity of crises is endogenous (i.e. when "credit bites back"). Furthermore, we find that using an asymmetric rule that only includes positive credit growth can reduce the frequency of severe financial recessions even further, but that this comes at the cost of higher volatility in normal times. Finally, we find that LAW policies can lead to relatively higher output volatility in normal times when agents perceive crisis risk correctly because they are already internalizing the risk of lower future consumption by reducing consumption today.
Cost Benefit Analysis Of Leaning Against The Wind
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Author : Mr.Lars E. O. Svensson
language : en
Publisher: International Monetary Fund
Release Date : 2016-01-11
Cost Benefit Analysis Of Leaning Against The Wind written by Mr.Lars E. O. Svensson and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-01-11 with Business & Economics categories.
“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.
Should Monetary Policy Lean Against The Wind
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Author : Leonardo Gambacorta
language : en
Publisher:
Release Date : 2013
Should Monetary Policy Lean Against The Wind written by Leonardo Gambacorta and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Bank loans categories.
Leaning Against The Wind
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Author : Thore Kockerols
language : en
Publisher:
Release Date : 2019
Leaning Against The Wind written by Thore Kockerols and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Leaning Against The Wind With Fiscal And Monetary Policy
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Author : Shaun de Jager
language : en
Publisher:
Release Date : 2022
Leaning Against The Wind With Fiscal And Monetary Policy written by Shaun de Jager and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with categories.
Leaning Against The Wind
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Author : Lars E. O. Svensson
language : en
Publisher:
Release Date : 2017
Leaning Against The Wind written by Lars E. O. Svensson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Economic stabilization categories.
"Leaning against the wind" (LAW), that is, tighter monetary policy for financial-stability purposes, has costs in terms of a weaker economy with higher unemployment and lower inflation and possible benefits from a lower probability or magnitude of a (financial) crisis. A first obvious cost is a weaker economy if no crisis occurs. A second cost - less obvious, but higher - is a weaker economy if a crisis occurs. Taking the second cost into account, Svensson (2017) shows that for representative empirical benchmark estimates and reasonable assumptions the costs of LAW exceed the benefits by a substantial margin. Previous literature has disregarded the second cost, by assuming that the crisis loss level is independent of LAW. Some recent literature has effectively disregarded the second cost, making it to be of second order by assuming that the cost of a crisis (the crisis loss level less the non-crisis loss level) is independent of LAW. In these cases where the second cost is disregarded, for representative estimates a small but economically insignificant amount of LAW is optimal.
When To Lean Against The Wind
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Author : Björn Richter
language : en
Publisher:
Release Date : 2017
When To Lean Against The Wind written by Björn Richter and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Credit categories.
This paper shows that policy-makers can distinguish between good and bad credit booms with high accuracy and they can do so in real time. Evidence from 17 countries over nearly 150 years of modern financial history shows that credit booms that are accompanied by house price booms and a rising loan-to-deposit-ratio are much more likely to end in a systemic banking crisis. We evaluate the predictive accuracy for different classification models and show that the characteristics of the credit boom contain valuable information for sorting the data into good and bad booms. Importantly, we demonstrate that policy-makers have the ability to spot dangerous credit booms on the basis of data available in real time. We also show that these results are robust across alternative specifications and time-periods.
The Nonlinear Interaction Between Monetary Policy And Financial Stress
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Author : Martín Saldías
language : en
Publisher: International Monetary Fund
Release Date : 2017-08-04
The Nonlinear Interaction Between Monetary Policy And Financial Stress written by Martín Saldías and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-08-04 with Business & Economics categories.
This paper analyzes the nonlinear relationship between monetary policy and financial stress and its effects on the transmission of shocks to output. Results from a Bayesian Threshold Vector Autoregression (TVAR) model show that the effects of monetary policy shocks on output growth are stronger during normal times than during times of financial stress. Monetary policy shocks are effective to ease stressed financial conditions, but have limited ability to fully contain the buildup of vulnerabilities. These results have important policy implications for central banks’ countercyclical policies under different financial conditions and for “lean against the wind” policies to address financial vulnerabilities.