Loose Monetary Policy and Financial Instability

Maximilian Grimm, Oscar Jorda, Moritz Schularick and Alan Taylor

No 30958, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill this gap by analyzing long-run historical data. We find that when the stance of monetary policy is accommodative over an extended period, the likelihood of financial turmoil down the road increases considerably. We investigate the causal pathways that lead to this result and argue that credit creation and asset price overheating are important intermediating channels.

JEL-codes: E43 E44 E52 E58 G01 G21 N10 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-his and nep-mon
Note: AP DAE IFM ME
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.nber.org/papers/w30958.pdf (application/pdf)

Related works:
Working Paper: Loose monetary policy and financial instability (2023)
Working Paper: Loose Monetary Policy and Financial Instability (2023)
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:nbr:nberwo:30958

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w30958

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().