Suggestions have been made that the Bank should have deviated from such implicit rule-based path both in times of upswing as well as downswing. From my perspective, for discussions on policy rules to be more relevant and robust, they should at least take into account major swings of asset prices.
Our experience shows that price stability, by making low interest rate possible, can pave a way to a major asset price bubble when it is coupled with excessive optimism for the future. 15. Finally, what matters most in the post-bubble development is the magnitude of the lost capital and its distribution ie who in the system has to absorb the loss.