Taylor rule

Did Central Banks Cause The Last Financial Crisis? Will They Cause The Next?

Recent history suggests that raising interest rates higher than warranted by macroeconomic prospects would not be the right policy for financial stability. The significant tightening of monetary policies in the advanced economies from mid-2004 to mid-2006 failed to stop increased risk-taking in the financial system. The pre-GFC policy failure was not lax monetary policy but the failure of regulators to address (and markets to sanction) new risks created by innovation in international banks.