There are two different reasons why monetary policy cannot, and should not, be used to deal with financial instability in asset markets. The first relates to the fact that the priority goals of monetary policy may require an expansionary (restrictive) stance when asset markets would require restrictive (expansionary) measures. Monetary policy cannot abandon its priorities as clearly stated in the mandate of central banks.
More generally, as Mervyn King once stated, it would be highly controversial if a restrictive central bank policy adopted for reasons of asset market risks would create “mini-recessions” in real activity and unemployment, when the level of inflation would be compliant with the defined and publicly-known target.