Conversely, actions taken to prevent the exchange rate from rising (intervention) might conceivably result in an increase in domestic liquidity that would fuel imbalances rather than moderate them. Finally, it may prove (indeed has proved) difficult to get policymakers to focus on the simultaneous occurrence of a number of developments as the only reliable indicator that imbalances are building up.
Rather, there has been a tendency to suggest that the macroprudential approach comes down to “targeting asset prices”, and various well known objections can be raised to this. Which of many asset prices should be targeted? What should be the targeted level? Would interest rates high enough to “burst the asset price bubble” not cause enormous damage elsewhere in the economy?