In the context of traditional financial crises, there has been a lively academic debate about whether central banks should “lean against the wind” to mitigate the risks of a crisis or focus instead on cleaning up afterwards. In my view, a similar discussion is obsolete in the context of green swans for at least three reasons.
For equity markets, the combination of low interest rates, strong economic growth and low inflation has proved very beneficial, with global share markets rising solidly in each of the past three years. This has been underpinned by strong growth in profits so that, notwithstanding the rise in share prices, P/E ratios have been declining on average.