The “Lean vs. Clean” Debate in Monetary Policy: New Evidence

Abstract This paper explores the ongoing debate on the role of monetary policy in preventing and addressing financial crises, known as the “lean vs. clean” dilemma. The central question is whether central banks should act preventively to avoid financial bubbles and imbalances (the lean approach), or whether it is more effective to respond only after they burst, focusing on mitigating the consequences (the clean approach). Through a review of theoretical literature and historical experiences, the paper highlights the advantages and limitations of both approaches. Special emphasis is placed on post-crisis reforms and the role of macroprudential policy as a complementary instrument to monetary policy. The paper shows that neither approach offers a universally applicable solution, but places a slight emphasis on the lean approach and suggests that the new framework for monetary policy must include a combination of preventive measures, effective responses after a crisis outbreak, international coordination of central banks, as well as improvements in forecasting models and early warning systems.