As I mentioned recently: “Macro-prudential policy faces a major test going forward: will there be determination and boldness to try to smooth the financial cycle, or will the authorities just take refuge in building buffers and strengthening financial institutions?”34 This would imply that significant reliance on monetary policy would remain to address a posteriori the regrettable results of the boom/bust feature of the financial system.
The real exchange rate, however, did not move much through this episode. 13 The current account, which had moved to a very large deficit during the 1880s property bubble (13 per cent of GDP) moved back to a more normal small deficit in the 1890s, and eventually into surplus when the mining boom ended and the economy slowed in the early 1900s.