Economics, Econometrics and Finance
3 years ago

Loose financial conditions predict economic growth and stability, shaping optimal monetary policy.

SSRN Electronic Journal
Monetary Policy and Financial Conditions: A Cross-Country Study
Tobias Adrian, Fernando Duarte, Federico Grinberg, Tommaso Mancini Griffoli

Paper Summary

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Loose financial conditions predict strong economic growth and stable output in the future, leading to less risk for the economy. This holds true across different countries and time periods. The study looked at how monetary policy should respond to these changing financial conditions, especially when there is a risk of economic downturn. The results suggest that adjusting monetary policy based on financial conditions can lead to significant benefits for the economy.