Central banks’ refusal to “lean against the wind” in OECD countries: Are the effects already visible?

As the expansion period nears its end, central banks in OECD countries (we look at the United States, Canada, the United Kingdom, Sweden, the euro zone, Japan and Australia) are keeping monetary policy highly expansionary, with interest rates significantly lower than growth rates. These central banks are therefore refusing to “lean against the wind”, i.e. gradually tighten monetary policy during the expansion period. Their r efusal to lean against the wind can be expected to give rise to overindebtedness and to asset price bubbles. This is the case with regard to: Public debt in the United States, the United Kingdom and Japan; Private sector debt in Canada and Australia; Share prices in the United States; Residential real estate in Canada and Australia; Commercial real estate in Sweden, Canada and Australia. We can therefore conclude that OECD central banks’ refusal to lean against the wind has given rise to the expected effects in only 11 of 35 possible cases (seven countries, five possible financial imbalances), but that these are concentrat ed in Canada and Australia.