“Leaning against the wind” (LAW) with a higher monetary policy interest rate may have benefits in
terms of lower real debt growth and associated lower probability of a financial crisis but has costs in
terms of higher unemployment and lower inflation, importantly including a higher cost of a crisis
when the economy is weaker. For existing empirical estimates, costs exceed benefits by a substantial
margin, even if monetary policy is nonneutral and permanently affects real debt. Somewhat
surprisingly, less effective macroprudential policy and generally a credit boom, with resulting higher
probability, severity, or duration of a crisis, increases costs of LAW more than benefits, thus further
strengthening the strong case against LAW.