Monetary policy for financial stability

Keynote speech by Mr Jaime Caruana, General Manager of the BIS, at the 52nd SEACEN Governors' Conference, Naypyidaw, 26 November 2016.

BIS speech  | 
30 November 2016

Some widely cited models find that tightening monetary policy to reduce the probability of financial crisis ("leaning against the wind") has near-term macro costs that appreciably exceed the long-term output gains. However, these models make assumptions that tend to underestimate the net benefits of such a policy. Relaxing some of these strict assumptions suggests that leaning early as part of a systematic response from monetary policy over the whole financial cycle can yield significant economic benefits.