What have we learned on asset price bubbles and monetary policy? We know that bubbles are extremely difficult to identify in real time. Given that the assessment of whether or not asset price are being driven by fundamentals is surrounded with uncertainty, perhaps even sometimes uncertainty in the “Knightian” sense, central banks should refrain from targeting asset prices.
Moreover, while monetary policy actions can influence asset price developments, the magnitude of the swings in policy rates that would be needed to curb boom and bust cycles in asset prices could have adverse implications for macroeconomic stability in the short term.