Monetary policy must adapt to changing risk appetite for economic stability
The article discusses how changes in people's willingness to take risks can impact their saving habits and influence monetary policy. The researchers use a specific economic model to show that during tough times, it makes sense for policymakers to be more accommodating to encourage spending. On the other hand, when things are going well, it's better for policy to be more restrictive. Ignoring these risk-related adjustments could lead to bigger mistakes in uncertain times.