Norges Bank paper offers insights on when to ‘lean against the wind’
Working paper investigates use of monetary policy in mitigating financial imbalances
'Leaning against the wind' monetary policies can lead to favourable outcomes in terms of reducing the likelihood of severe crises, a working paper published by Norges Bank suggests.
Authors Karsten R. Gerdrup, Frank Hansen, Tord Krogh and Junior Maih use a New Keynesian Markov-switching model where the economy can be in a normal state or in a crisis to investigate what extent monetary policy should "actively" aim at mitigating the build-up of financial imbalances, in their paper Leaning against
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