The crisis proved that this was not true as a period of moderate inflation coincided with the build‐up of financial imbalances and asset price bubbles. It was hard to argue that conventional monetary policy using interest rates could and should be used to address those imbalances or prick asset price bubbles.
Indeed, it is difficult to identify bubbles and virtually impossible to calibrate interest rates to produce the desired effects on asset prices. In many cases, the required increase in interest rates would create unnecessary recessionary episodes. The use of monetary policy to “lean against the wind” may be very costly, as Svensson (2016) has demonstrated.