The balance of stability and risk-taking
"The relationship between the two is not straightforward. Certainly, long periods of very loose monetary policy and ultra-low rates, mixed with the hunt for higher yields could prove to be a recipe for unhealthy risk-taking. At the same time, the absence of UMP could easily have resulted in worse growth outcomes, with even greater risk of financial distress.
In particular, we will know whether the global market correction earlier this year was a useful reminder that exuberance can go too far, or if it is the start of a new period of choppy conditions and regular scares. We all hope for the former, but prudence suggests planning for the latter possibility.
Some modes of UMP affect the long end of the yield curve, perhaps more so than conventional monetary policy. That would tend to affect a broader range of assets and asset classes than we typically see with conventional monetary policy, and thus creates a risk-taking incentive that could prove worrying".
Christine Legard
Managing Director IMF
Christine Legard
Managing Director IMF
