Chasing the Tail of Financial Stability? Solutions to the Last Crisis Are the Seeds for the Next One

Marcel Kasumovich

Chapter 5 in A Financial Crisis Manual, 2015, pp 81-101 from Palgrave Macmillan

Abstract: Abstract There is a growing tension in policy objectives. While unemployment rates are returning to long-term norms, inflation is undershooting policy objectives most notably in Europe and Japan. This has encouraged global monetary policy to err on the side of an accommodative stance, on the grounds of being the lowest-risk outcome. The cost of a policy mistake from preemptive tightening — deflation — is much greater than a potential overshooting of inflation from too long a period of low interest rates. High debt ratios and lower nominal income trends risk a lasting negative feedback loop through lower expected returns, larger pension gaps, higher saving rates, lower capital demand, and tighter credit conditions.

Keywords: Central Bank; Federal Reserve; Systemic Risk; Financial Stability; Credit Default Swap (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-1-137-44830-9_6

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DOI: 10.1057/9781137448309_6

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