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## Abstract The extensive harm caused by the financial crisis raises the question of whether policymakers could have done more to prevent the build-up of financial imbalances. This paper aims to contribute to the field of regulatory impact assessment by taking up the revived debate on whether central banks should use the interest rate to directly respond to the build-up of financial sector imbalances, i.e. ‘lean against the wind’ or not. Currently, there is no consensus on whether monetary policy is, in general, able to support the resilience of the financial system or if this task should better be left to the macroprudential approach of financial regulation. The author aims to shed light on this issue by analyzing distinct policy regimes within an agent-based computational macro-model with endogenous money. He finds that policies that make use of their comparative advantage lead to superior outcomes concerning their respective intended objectives. In particular, he shows that ‘leaning against the wind’ should only serve as first line of defense in the absence of a prudential regulatory regime and that price stability does not necessarily mean financial stability. Moreover, macropr

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Author

Krug, Sebastian

Publisher

ZBW - German National Library of Economics; Kiel Institute for the World Economy; Kiel: Kiel Institute for the World Economy; Walter de Gruyter GmbH (ISSN 1864-6042)

Published

2018

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)