Financial Stability and Interest-Rate Policy: A Quantitative Assessment of Costs and Benefits

30 Pages Posted: 27 Sep 2016

See all articles by Andreas Pescatori

Andreas Pescatori

International Monetary Fund (IMF)

Stefan Laseen

International Monetary Fund (IMF)

Date Written: March 2016

Abstract

Should monetary policy use its short-term policy rate to stabilize the growth in household credit and housing prices with the aim of promoting financial stability? We ask this question for the case of Canada. We find that to a first approximation, the answer is no- especially when the economy is slowing down.

Keywords: Monetary Policy, Endogenous Financial Risk, Bayesian VAR, Non-Linear Dynamics, Policy Evaluation.

JEL Classification: E30, E52, E58, E44, E61, G20, G12

Suggested Citation

Pescatori, Andreas and Laseen, Stefan, Financial Stability and Interest-Rate Policy: A Quantitative Assessment of Costs and Benefits (March 2016). IMF Working Paper No. 16/73, Available at SSRN: https://ssrn.com/abstract=2844150

Andreas Pescatori (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Stefan Laseen

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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