Staff Position Notes (SPNs) showcase new policy-related analysis and research by IMF departments. These notes are generally brief, written in nontechnical language, and are aimed at a broad audience interested in economic policy issues, including staff involved in mission work, members of the Executive Board, and persons outside the Fund. This series replaced the Policy Discussion Papers series at the end of 2008. Most SPNs are around 25 pages, allowing for only a couple of simple equations and several tables and charts, which distinguishes them from the longer, and generally more technical, Working Papers.
This paper contributes to the current debate on what role financial stability considerations should play in monetary policy decision and how best to integrate macro-prudential and monetary policy frameworks. The paper broadly supports the view that monetary policy easing induces greater risk-taking by banks but also shows that the relationship between real interest rates and banking risk is more complex. Ultimately, it depends on how much skin in the game banks have. The central message of the paper is broadly complementary to those in the recent MCM board paper 'Central Banking Lessons from the Crisis.'