Abstract
There is a growing tension in policy objectives. While unemployment rates are returning to long-term norms, inflation is undershooting policy objectives most notably in Europe and Japan. This has encouraged global monetary policy to err on the side of an accommodative stance, on the grounds of being the lowest-risk outcome. The cost of a policy mistake from preemptive tightening — deflation — is much greater than a potential overshooting of inflation from too long a period of low interest rates. High debt ratios and lower nominal income trends risk a lasting negative feedback loop through lower expected returns, larger pension gaps, higher saving rates, lower capital demand, and tighter credit conditions.
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© 2015 Marcel Kasumovich
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Kasumovich, M. (2015). Chasing the Tail of Financial Stability? Solutions to the Last Crisis Are the Seeds for the Next One. In: Thomakos, D.D., Monokroussos, P., Nikolopoulos, K.I. (eds) A Financial Crisis Manual. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/9781137448309_6
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DOI: https://doi.org/10.1057/9781137448309_6
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