{
  "title": "Leaning Against the Wind and the Timing of Monetary Policy",
  "publication": "IMF Working Papers, April 3, 2013",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/leaning-against-the-wind-and-the-timing-of-monetary-policy-40459",
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  "summary": "If monetary policy is to aim also at financial stability, how would it change? To analyze this question, this paper develops a general-form framework.",
  "sections": [
    {
      "heading": "Summary findings",
      "content": "- Financial stability objectives make monetary policy more aggressive.\n- In reaction to negative shocks, policy rate cuts are:\n  - deeper than otherwise, and\n  - shorter-lived than otherwise.\n- By keeping cuts brief, monetary policy tightens as soon as bank risk appetite heats up.\n- Within this shorter time span, cuts must be deeper than otherwise to also achieve standard objectives."
    },
    {
      "heading": "Analytical approach",
      "content": "- The paper develops a general-form framework to analyze how adding financial stability objectives affects the timing and magnitude of monetary policy actions.\n- The framework explicitly links monetary policy trade-offs to bank risk appetite and the timing of policy tightening."
    },
    {
      "heading": "Robustness and illustrative example",
      "content": "- The paper analyzes robustness of the main result to the presence of a bank regulatory tool.\n- A parameterized example is provided to illustrate the mechanisms and quantitative implications."
    },
    {
      "heading": "Policy implications",
      "content": "- Central banks that incorporate financial stability explicitly will implement more aggressive (deeper) but shorter-lived interest rate cuts in response to negative shocks.\n- Early tightening—triggered when bank risk appetite rises—serves to limit the build-up of financial instability.\n- When cuts are intended to be brief, their depth must increase to attain standard macroeconomic objectives within the constrained time window.\n\n---\n\n Content in this bundle\n\n- Appendix A: Proofs\n  - Appendix A: Proofs (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Appendix A: Proofs (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/leaning-against-the-wind-and-the-timing-of-monetary-policy-40459"
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    "Authors: Itai Agur, Maria Demertzis",
    "Published: April 3, 2013",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484378380.001",
    "Financial stability objectives make monetary policy more aggressive.",
    "In reaction to negative shocks, policy rate cuts are:",
    "By keeping cuts brief, monetary policy tightens as soon as bank risk appetite heats up.",
    "Within this shorter time span, cuts must be deeper than otherwise to also achieve standard objectives.",
    "The paper develops a general-form framework to analyze how adding financial stability objectives affects the timing and magnitude of monetary policy actions.",
    "The framework explicitly links monetary policy trade-offs to bank risk appetite and the timing of policy tightening.",
    "The paper analyzes robustness of the main result to the presence of a bank regulatory tool.",
    "A parameterized example is provided to illustrate the mechanisms and quantitative implications.",
    "Central banks that incorporate financial stability explicitly will implement more aggressive (deeper) but shorter-lived interest rate cuts in response to negative shocks.",
    "Early tightening—triggered when bank risk appetite rises—serves to limit the build-up of financial instability.",
    "When cuts are intended to be brief, their depth must increase to attain standard macroeconomic objectives within the constrained time window.",
    "**Appendix A: Proofs**"
  ],
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