By Daniel Hinge
Keeping monetary policy too loose for too long can lead to a “big” increase in the risk of a financial crisis, new research into a controversial area of policy finds.
Maximilian Grimm, Òscar Jordà, Moritz Schularick and Alan Taylor say they are “the first to show that, as a causal matter, a loose stance has strong implications for medium-term financial instability”.
Link: February 2023: Loose monetary policy has ‘big’ impact on crisis risk – NBER paper