"Low for Long" and Risk-Taking
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Summary:
The COVID-19 pandemic is causing an unprecedented worldwide economic contraction, leading central banks to reduce interest rates to historically low levels and making unconventional monetary policies—including “low for long” interest rates and asset purchases—increasingly common. Arguably, however, the policies implemented are efficient because they encourage increased risk-taking, and they may have, if unintentionally, increase medium- and long-run macro-financial vulnerabilities. This paper argues that the resulting trade-offs need to be carefully accounted for in monetary policy models and outlines how that can be achieved in practice.
Series:
Departmental Paper No. 2020/015
Subject:
Financial risk Financial stability Monetary policy
Frequency:
occasional
English
Publication Date:
November 24, 2020
ISBN/ISSN:
9781513556062/2616-5333
Stock No:
LFLRTEA
Format:
Paper
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