The Brave new World of Central Banking

Stephen Cecchetti

National Institute Economic Review, 2006, vol. 196, issue 1, 107-119

Abstract: 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 article I examine the theoretical and empirical case for the existence of equity and property bubbles, and then summarise the economic distortions that they create. The evidence suggests increasing our attention to 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.

Keywords: Central bank policy; equity price bubbles; housing price bubbles (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:sae:niesru:v:196:y:2006:i:1:p:107-119

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