Monetary policy-makers should also be wary of taking on too many additional responsibilities, such as trying to stabilize selective market assets. This is not to say that we should not pay attention to what is happening in financial markets. We certainly should. These markets can convey important information about future developments. And they exert direct and indirect influences on the real economy.
But monetary authorities must resist the siren calls for active management of financial markets and the pleas for regular intervention to help stabilize asset prices. It would be unfortunate if we were to repeat costly past mistakes for the sake of near-term expediency.