Monetary policy impacts financial stability – BIS paper

“Leaning against” booms may be better goal than strict inflation targeting, say researchers

The Bank for International Settlements, Basel
Photo: Ulrich Roth

Monetary policy influences the build-up of financial imbalances, and a policy of “leaning against” booms could boost welfare, research published by the Bank for International Settlements finds.

Authors Frederic Boissay, Fabrice Collard, Jordi Galí and Cristina Manea augment a “textbook” New Keynesian macroeconomic model with mechanisms that generate financial imbalances.

The paper outlines a model featuring “endogenous capital accumulation”, meaning the economy can deviate from its steady

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