The Brave New World of Central Banking: The Policy Challenges Posed by Asset Price Booms and Busts
At the dawn of the 21st century, property and equity ownership are spread more broadly across the population than they once were. One consequence of this is that asset price booms and crashes now have a direct impact on general welfare. The fact that bubbles distort nearly all economic decisions gives policymakers a stronger interest in asset price stability. In this essay I examine the theoretical and empirical case for the existence of equity and property bubbles, and then summarize the economic distortions that they create. The evidence suggests increasing our attention on property prices. I go on to discuss the possible policy responses, including examining the consequences of changing the way in which housing is included in standard aggregate price measures.
|Date of creation:||Dec 2005|
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- Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
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"Monetary policy and asset price volatility,"
Federal Reserve Bank of Kansas City, issue Q IV, pages 17-51.
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- Charles R. Bean, 2004. "Asset Prices, Financial Instability, and Monetary Policy," American Economic Review, American Economic Association, vol. 94(2), pages 14-18, May.
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