What is it about?
Federal Reserve's signals about the future conduct of monetary policy work differently in expansionary and recessionary environments. In normal, expansionary times, signals about future monetary *contractions* reduce systemic risk with a moderate effect. In recessions, signals about future monetary *expansions* reduce systemic risk and the effect is quite large. Stabilizing systemic risk, therefore, requires diametrically opposite approaches in different macroeconomic environments.
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Why is it important?
The Great Recession of 2008-2009 and the COVID-19 Recession of 2020 have both been marked by considerable financial instability. This paper provides insights into how monetary policy can help stabilize these dynamics.
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This page is a summary of: Monetary policy news and systemic risk at the zero lower bound, International Journal of Finance & Economics, August 2020, Wiley, DOI: 10.1002/ijfe.2047.
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