Research queries monetary policy ability to curb financial crises
“Leaning against the wind” is unlikely to work, New York Fed paper argues
Using monetary policy to fight budding financial instability causes a large downturn risk to growth, say researchers with the Federal Reserve Bank of New York.
The researchers recommend central banks use macro-prudential policies to combat financial instability.
“A tighter path of monetary policy in 2003–05 would have increased the risk of adverse real outcomes three to four years ahead, especially if the tightening had been large or rapid,” they write. “We find that downside risk to growth
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