1 Changes in policy rates – in combination, eventually, with appropriate central bank communication – can also serve as a signalling device from central banks and break the private sector herding behaviour that fuels the bubble. Needless to say, “leaning against the wind” cannot be translated into an automatic rule.
Policy action is always the outcome of a decision that takes into account a complex situation. The monetary pillar is there to uncover the complexity of the shocks that drive monetary aggregates, and to alert us on the channels of influence through which these shocks can interact with financial trends and pose risks to price stability over the medium term.