Does “Lean Against the Wind” monetary policy improve welfare in a commodity exporter?

Abstract

Emerging Market Economies struggle to balance monetary policy with capital flow management and commodity price volatility. Our study employs a New-Keynesian model, using Russian data from 2001 to 2019, to examine ‘Lean Against the Wind’ (LAW) monetary policies. We show that under Lean Against the Wind (LAW) policies, households with borrowed funds experience improved welfare, while households that save are adversely affected. While LAW increases output and inflation volatility, it also presents mixed financial stability outcomes—lowering debt volatility but heightening that for household delinquencies. These findings highlight the complex effects of LAW in economies subject to varied shocks.

Publisher

Elsevier

Publication Date

3-1-2024

Publication Title

Journal of International Money and Finance

Department

Economics

Document Type

Article

DOI

https://doi.org/10.1016/j.jimonfin.2023.103012

Keywords

Lean against the wind, Financial stability, Macroprudential policy, Emerging markets, Small open economy, Commodity exporter

Language

English

Format

text

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