We first empirically document that excessive credit growth and asset price overvaluations raise the likelihood of financial crises and deepen the severity of associated economic downturns in advanced economies using linear probability models and local projections. We then rationalise these...

Should central banks use leaning against the wind (LAW)-type monetary or macroprudential policy to address risks to financial stability? We first assess LAW as a one-off (nonsystematic) policy using an estimated large-scale dynamic stochastic general equilibrium (DSGE) model with empirically...

We provide a theory of persistent financial cycles based on partly backward looking house price beliefs, endogenous crises and conditions under which leaning against the wind (LAW)-type monetary policy is advisable to address risks to financial stability. Under empirically plausible financial...