With the projections released today, we have started to produce macroeconomic projections that are conditional on the path of future interest rates expected by the markets, as embedded in the yield curve and in futures prices. This approach corresponds to the second option in Alan’s paper and addresses the concerns expressed by eliminating an internal inconsistency and improving transparency.
It will not solve all of his concerns, but it should mitigate some of them. IV. Monetary policy and asset prices I will turn now to the questions in Alan’s list that concern the relationship between monetary policy and financial markets. In Question 14, Alan asks: how should central banks react to asset price bubbles?