Monetary policy and long-run economic stability

Paper discusses the “Minsky’s paradox”, which states that the effect of anticyclical policy should weaken from one cycle to another, meaning that, to soften or postpone a crisis, a government will have to use stronger tools. To illustrate this regularity, we analyze the American data on interest rate and stock index over 59 years. The main result of the analysis is that over the recent decades the causal relationship between the interest rate and the stock index has changed, which is explained by the efforts of the monetary authorities to cope with the crises.