Asset Prices and Monetary Policy: Some Skeptical Observations

Publication: White Paper No. 9, 2009
Topic Area: Macro Finance
Authors: Stefan Gerlach
Date: Oct 2009
Keywords: monetary policy, macroecomomic fluctuations, regulation
Abstract:

In reaction to the current global financial crisis, a growing number of observers are calling for monetary policy to play a more active role in preventing future episodes of financial instability by “leaning against” asset price bubbles. This demand reflects the now widely held view that low and stable inflation provides no guarantee against the financial imbalances, whose resolution risks triggering sharp recessions and unleashing deflation pressures. Of course, the idea that monetary policy should also have a financial stability objective raises a number of questions for economic research. In my talk today, I will discuss what the role of monetary policy should be in preventing asset price bubbles.

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