7 To the extent that policy rate changes break private sector herding behaviour or reveal central bank intentions and private information, even a small change in policy rates can have a significant impact on asset price developments. 8 Such research suggests that a policy of leaning against the wind may have greater impact than previously thought.
Turning to the third reservation: what of the alternative approach – i.e. waiting until an asset bubble bursts and then easing policy aggressively so as to contain the adverse effects on real activity and inflation? Recent experience has clearly demonstrated the limitations of such a strategy.