Monetary policy and financial imbalances: facts and fiction

Liquidity shocks and asset price boom/bust cycles

Katrin Assenmacher and Stefan Gerlach

Economic Policy, 2010, vol. 25, issue 63, 437-482

Abstract: Following the financial crisis, many have argued that monetary policy should lean against asset price increases and that deviations of credit and asset prices from trend can be used to capture financial imbalances. We study quarterly data spanning 1986–2008 for a sample of 18 countries and argue that such measures contain little information useful for forecasting the future economic conditions. This casts doubts on the leaning-against-the-wind view. We also argue that tightening monetary policy in response to such imbalances are likely to depress real growth substantially. That finding, however, is sensitive to the Lucas critique.— Katrin Assenmacher-Wesche and Stefan Gerlach

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://hdl.handle.net/10.1111/j.1468-0327.2010.00249.x (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:ecpoli:v:25:y:2010:i:63:p:437-482.

Access Statistics for this article

Economic Policy is currently edited by Ghazala Azmat, Roberto Galbiati, Isabelle Mejean and Moritz Schularick

More articles in Economic Policy from CEPR, CESifo, Sciences Po Contact information at EDIRC., CES Contact information at EDIRC., MSH Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().