“To Lean or Not to Lean?” That is the Question


By Stefan Laseen, Andrea Pescatori, and Jarkko Turunen

Academics and policy-makers alike have long struggled with the question of whether to use monetary policy to dampen asset price booms – whether to “lean against the wind” or not. Can officials identify emerging asset price bubbles, what are the implications of bursting them, and is monetary policy the appropriate response to potential bubbles? These questions have become even more important to the policy debate in the wake of the global financial crisis, which was preceded by an unsustainable boom in sub-prime mortgage lending and housing prices.

Given over six years of near zero policy interest rates, should the U.S. Fed now use interest rates to lean against potential financial stability risks that may have built up?

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Tough Political Decisions Needed to Fix the Financial System


   By José Viñals

(Versions in عربي,  中文EspañolFrançaisРусский)

It was fitting that I should present our latest assessment of global financial stability in Sao Paulo, the financial center of one of the leading emerging economies. In common with many of its peers in Latin America, Brazil is recovering strongly from the crisis. But new financial stability challenges are emerging in this, and other fast-growing regions.

Let me start with three key messages:

  •  First, financial risks have increased since April.
  • Second, as a result, policymakers in both advanced and emerging economies need to step up their efforts to preserve financial stability and safeguard the recovery.
  • And third, we have entered into a new phase of the crisis – a political phasewhen tough political decisions will need to be made, because the window for substantial policy action is closing. Time is of the essence.  Continue reading
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