Conservative monetary policy raises banking fragility – paper

The Bank of Estonia

Empirical evidence indicates that more conservative central bank policies increase banking sector fragility, a working paper issued by the Bank of Estonia claims. In Central banks’ preferences and banking sector vulnerability, the authors use an index of “central banking conservatism”, or CBC, which they first proposed in a 2014 paper. They extend this index to a sample of data from 73 countries between 1980 to 2012. The index uses six indicators to measure banking sector vulnerability. The