DP12226 | Leaning Against the Wind: Costs and Benefits, Effects on Debt, Leaning in DSGE Models, and a Framework for Comparison of Results


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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 (2017) 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. (2017) 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.