Why policy should take account of asset prices

Recent financial market instability originating from subprime mortgage lending in the United States has again raised the question of what role asset prices should play in monetary policy. In particular, if central banks had given greater weight to the prices of assets such as stocks and real estate at an earlier stage in the cycle, they could have been prompted to restrain the boom in these assets in preceding years, and hence avoided or reduced the bust and its potential impact on wider economi

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