This accommodative policy can trigger an asset price and credit boom that inflates the original economic expansion. Eventually, it may turn out that the expectations of a new era, which triggered the over-accumulation of capital, do not come true. The revision of these beliefs can in turn lead to an asset price bust and to recession.
Clearly, the boom and bust would have been much smaller had the central bank followed a different monetary policy, based on enlarging its information set to include credit developments. 3. A more explicit role for financial conditions in monetary policy  So far I have discussed the pre-crisis consensus view on monetary policy and asset prices from a general perspective.