Loose Monetary Policy and Financial Instability / Maximilian Grimm, Òscar Jordà, Moritz Schularick, Alan M. Taylor.

Format:

Book

Author/Creator:

Grimm, Maximilian.

Contributor:

National Bureau of Economic Research.

Jordà, Òscar.

Schularick, Moritz.

Taylor, Alan M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30958.

NBER working paper series no. w30958

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

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.

Notes:

Print version record

February 2023.