Loose monetary policy has ‘big’ impact on crisis risk – NBER paper

Financial crisis

Keeping monetary policy too loose for too long can lead to a “big” increase in the risk of a financial crisis, new research into a controversial area of policy finds.

Maximilian Grimm, Òscar Jordà, Moritz Schularick and Alan Taylor say they are “the first to show that, as a causal matter, a loose stance has strong implications for medium-term financial instability”.

Their working paper, published by the National Bureau of Economic Research, presents the results of what the authors say is the

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