The housing-monetary policy nexus

monetRY POLICYBy Jann Swanson

There are two conflicting theories on how or even if monetary policy should play a role in stabilizing asset price booms and busts. If central banks use interest rate hikes sufficient to curb leverage and curb booms it might also boost unemployment and lower inflation, deviating from the central bank’s goals of full employment and price stability. The alternative is to concentrate on those dual goals and allow financial regulation and supervision to deal separately with threats to financial stability.

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