Tightening increases instability after supply shocks – IMF study
Authors say when other tools are too costly, rate hikes should be less aggressive
Monetary tightening exacerbates financial stress in the wake of supply shocks such as the pandemic and Russia’s invasion of Ukraine, according to a study by the International Monetary Fund.
The research, published on January 31, finds that monetary tightening has this effect by reducing asset prices and bank equity.
The authors, Damien Capelle and Ken Teoh, also say that rate hikes increase the likelihood of banking runs and crashes in the equities markets.
Capelle and Teoh say they were motivated
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