"Front-loading" monetary tightening: pros and cons

BIS Bulletin  |  No 63  | 
09 December 2022

Key takeaways

  • In response to the surge in inflation globally, central banks have engaged in the most synchronised and rapid monetary tightening in 50 years.
  • Parsing the evidence from 11 advanced economies since 1970 indicates that "front-loading" of interest rate hikes is successful in countering inflation, even in the face of large and persistent inflationary shocks.
  • Still, front-loaded monetary policy tightening may carry risks to financial stability, especially in an environment of high private and public debt levels or potential fragility in market liquidity.