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September 2017 issue
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Rachel, Smith
Juselius, Borio, Disyatat, Drehmann
Hall
Bahaj, Foulis
Grisse, Krogstrup, Schumacher
Yoo
Krishnamurthy
Gerdrup, Hansen, Krogh, Maib
Bauer, Granziera
Svensson
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Commentary: Leaning Against the Wind: Costs and Benefits, Effects on Debt, Leaning in DSGE Models, and a Framework for Comparison of Results

by Lars E.O. Svensson
Stockholm School of Economics, CEPR, and NBER

Abstract

The simple and transparent framework for cost-benefit analysis of leaning against the wind (LAW) in Svensson (2017a) and its main result are summarized. The analysis of the policy-rate effects on debt in Bauer and Granziera (this issue) does not seem to contradict that the effects may be small and of either sign. The analysis of LAW in DSGE models is complicated and the results of Gerdrup et al. (this issue) may not be robust. The Svensson (2017a) framework may allow comparison and evaluation of old and new approaches and their results. As an example, it is shown that these three papers result in very different marginal costs of LAW and that a realistic policy-rate effect on unemployment is crucial.

JEL Codes: E52, E58, G01.

 
Full article (PDF, 24 pages, 466 kb)