Inflation targeting, asset prices, and financial imbalances: Contextualizing the debate

Piti Disyatat

Journal of Financial Stability, 2010, vol. 6, issue 3, 145-155

Abstract: This paper casts the debate regarding the role of asset prices and financial imbalances in the formulation of monetary policy from the perspective of theoretically optimal policy responses. Within the context of a standard model of the transmission mechanism, several possible motivations for responding to financial imbalances are highlighted. However, preventative policy actions against the build-up of financial imbalances cannot be easily understood within such a framework without fundamental modification to the underlying model. It is argued that a more practical way to evaluate such actions is through the inclusion of concerns for financial imbalances explicitly in the central bank's objective function.

Keywords: Inflation; targeting; Monetary; policy; Asset; prices; Financial; imbalances (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (57)

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Related works:
Working Paper: Inflation targeting, asset prices and financial imbalances: conceptualizing the debate (2005)
Working Paper: Inflation Targeting, Asset Prices, and Financial Imbalances: Conceptualizing the Debate (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:6:y:2010:i:3:p:145-155

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