Monetary policy, inflation, and crises: evidence from history and administrative data

Abstract

Data de publicació electrònica: 27-01-2026

We show that a U-shaped monetary rate path increases banking crisis risk, via credit and asset price cycles, analyzing 17 countries over 150 years. Rate hikes (raw or instrumented) increase crisis risk, but only if preceded by prolonged cuts. These patterns are unique to banking crises, unlike noncrisis recessions. Regarding the mechanism, prolonged cuts raise the likelihood of large credit and asset price booms, consistent with higher credit supply and risk-taking. Subsequent hikes strongly reduce credit and asset prices, and increase banks' realized credit risk, rather than interest rate risk. We find consistent results in administrative loan-level data for Spain.

This work was supported by the Spanish Agencia Estatal de Investigación (AEI) through the Severo Ochoa Programme for Centres of Excellence in R & D (Barcelona School of Economics CEX2019-000915-S), and the Spanish Ministry of Science and Innovation and the State Research Agency grant PID2020-118541GBI00 and the Ramon y Cajal fellowship (RYC2021-033982-I and RYC2022-038033-I).