Asset Prices and Monetary Policy

The widespread liberalization of financial markets in the 1980s has increased the interest of central banks in asset market developments in two ways. First, as the use of intermediate targets has become unreliable in many countries, central banks have sought other indicators to guide policy actions. A natural place to look has been various asset markets. Second, the greater role of asset prices in the monetary transmission mechanism, combined with their sustained volatility, has led to an increased concern that large changes in asset prices might disrupt economic activity and price stability as well as lead to financial fragility. This report collects the views of several prominent scholars and central bankers on whether and how asset price developments can be incorporated in the design of monetary policy. These views were expressed in a concluding panel discussion of a conference on Asset Prices and Monetary Policy organized by CEPR and the BIS.