‘Leaning against the wind’: exchange rate intervention in emerging markets works

Christian Daude, Eduardo Levy Yeyati 01 September 2014

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The economic debate has typically downplayed the exchange rate-smoothing nature of central bank foreign exchange intervention, attributing it to precautionary or prudential motives, or to the goal of keeping the exchange rate undervalued for mercantilist reasons.

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Topics:  Exchange rates Monetary policy

Tags:  Central Banks, exchange rates, exchange rate smoothing, emerging markets, Leaning against the wind

Why leaning against the wind is the wrong monetary policy for Sweden

Lars E.O. Svensson 05 July 2014

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There is a lively ongoing debate about whether raising interest rates beyond the level needed to stabilise prices – ‘leaning against the wind’ – is a justified modification of flexible inflation targeting (as discussed in Smets 2013). In a new paper, I explain why leaning against the wind is the wrong monetary policy for Sweden (Svensson 2014).

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Topics:  Monetary policy

Tags:  Leaning against the wind, Riksbank, lean vs clean

Managing credit bubbles

Alberto Martin, Jaume Ventura 05 July 2014

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Credit markets play an increasingly central role in modern economies. Within the OECD, for instance, domestic credit has risen from 100% of GDP in 1970 to approximately 160% of GDP in 2012 (as measured by the Bank for International Settlements). To be sure, this growth masks large variations across countries and over time, but there is a common feature to all these different country experiences that stands out. Credit has often alternated between ‘booms’ – periods of rapid growth – and ‘busts’ – periods of stagnation or significant decline.

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Topics:  Financial markets Macroeconomic policy

Tags:  credit booms, lender of last resort, bubbles, credit, Leaning against the wind, collateral, financial accelerator

‘Leaning against the wind’, debt deflation, and the Riksbank

Lars E.O. Svensson 10 October 2013

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A dangerous thing concerning debt is what Irving Fisher (1933) called ”debt deflation.” It is usually described as deflation causing the real value of nominal debt to increase. Loan-to-value and loan-to-income ratios also increase, since the debt is fixed in nominal terms but the nominal value of assets and income fall. This may hurt the economy through bankruptcies, deleveraging, and fire sales.

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Topics:  Monetary policy

Tags:  Leaning against the wind, Riksbank, debt deflation

Monetary policy and excessive bank risk taking

Itai Agur, Maria Demertzis 13 January 2011

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Disclaimer: The views expressed in this article are those of the authors only, and do not reflect the views of De Nederlandsche Bank or of its Board.

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Topics:  Monetary policy

Tags:  financial stability, Leaning against the wind