IMF paper finds leaning against the wind can work, but it is not optimal
Researchers conclude monetary policy can be used to reduce systemic risks
Using macro-prudential policy to address systemic risk leads to "higher welfare gains" than using monetary policy, according to a working paper published by the International Monetary Fund on June 30.
In Systemic Risk: A New Trade-off for Monetary Policy?, Stefan Laseen, Andrea Pescatori and Jarkko Turunen introduce time-varying systemic risk into a standard New Keynesian model to consider how best to address systemic risk.
The authors find a "systematic monetary policy that progressively reacts
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