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Progress and ConfusionThe State of Macroeconomic Policy$
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Olivier Blanchard, Raghuram G. Rajan, Kenneth S. Rogoff, and Lawrence H. Summers

Print publication date: 2016

Print ISBN-13: 9780262034623

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034623.001.0001

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PRINTED FROM MIT PRESS SCHOLARSHIP ONLINE (www.mitpress.universitypressscholarship.com). (c) Copyright The MIT Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in MITSO for personal use.date: 26 September 2021

A Simple Cost-Benefit Analysis of Using Monetary Policy for Financial Stability Purposes

A Simple Cost-Benefit Analysis of Using Monetary Policy for Financial Stability Purposes

Chapter:
(p.107) 11 A Simple Cost-Benefit Analysis of Using Monetary Policy for Financial Stability Purposes
Source:
Progress and Confusion
Author(s):

Lars E. O. Svensson

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262034623.003.0011

The chapter applies a cost-benefit analysis to addresses the question of whether monetary policy should be used for financial stability purposes. It finds that the benefits of moderate increases in interest rates to address financial stability, in terms of reducing the likelihood and severity of the crisis are very small and overwhelmed by the much larger costs in terms of increased unemployment. The paper concludes that monetary policy is not the right tool to deal with financial stability, and that macroprudential policies are much better suited to this task.

Keywords:   monetary policy, financial stability, cost-benefit analysis, macroprudential policy

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