As regards the monitoring of asset price cycles and mitigating the risk of credit-fuelled booms, the newly formed ESRB, which brings together central bankers, financial supervisors (both national and European) and the European Commission, is best placed to provide warnings and recommendations to policymakers.
We will never be able to create a “bubble free” world but, with better support from macro-prudential policy, we can significantly reduce the probability of costly booms. References Alessi, L. and C. Detken, “Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity”, European Journal of Political Economy, 27(3), 520–533, Sept. 2011.