The risks of this approach are to increase the amplitude of business cycle fluctuations and hinder the credibility of the central bank regarding its inflation objective, while only marginally reducing the probability of financial crises.
My conclusion is that the costs of “leaning against the wind” are likely to exceed benefits as I illustrated in a recent intervention applying the methodology developed by Lars Svensson to the euro area. [12] Macroprudential policy should be the main policy tool to respond to the buildup of financial imbalances.