"Low for Long" and Risk-Taking

November 24, 2020

Preview Citation

Format: Chicago

Tobias Adrian. "Low for Long" and Risk-Taking, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: The views expressed herein are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Financial sector policy and analysis, Monetary policy, Production

Keywords: Augmented monetary-policy rule, Decision makers, Financial risk, Financial sector risk, Financial Stability, Global, Growth distribution, Macroprudential policy, Macroprudential policy instruments, Monetary Policy, Monetary policy making, Monetary-policy decision makers, Monetary-policy transmission mechanism, NKV framework, NKV model, Output gap, Production growth, Risk-Taking, Rule in the NKV framework

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Departmental Paper No. 2020/015
Stock No:

LFLRTEA
ISBN:

9781513556062
ISSN:

2616-5333

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