Real impact of credit booms demands policy rethink, say BIS economists
Results call for wide-ranging rethink of policy-making, authors say
Policy-makers should rethink their approach to macroeconomics to better incorporate the impact of financial booms on the real economy, economists from the Bank for International Settlements (BIS) argue in a working paper published on January 5.
The paper finds credit booms feed through into the real economy by encouraging reallocations of labour into less productive sectors – particularly construction. As such, a boom harms the economy even before it turns to bust, although the impact on
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