This question basically relates to the Year-old discussion of “should the central bank prick bubbles or not?” Today asset price considerations are present in central banking practice in many countries – Norway, eurozone or Japan, to name just a few. Norgesbank speaks openly that when setting interest rates it does not ignore developments in asset and credit markets 17 and its inflation report contains an asset price forecast. The ECB’s president Trichet has in turn acknowledged that the monetary pillar of the ECB “contributes to assessing the extent to which excess creation of liquidity and over-extension of credit can be a driving force behind excessively valued assets […] and might reflect the inflating of an asset price bubble” 18 . Bank of Japan said in its “New Framework for Monetary Policy” that “risk factors include […] generating an asset price bubble” and that “in conducting monetary policy, the Bank needs to do its utmost to prevent the materialisation of such potential risks.” 19 A hot issue in today’s discussion about IT is transparency and communication. More and more economists realise that communication is the primary channel of central bank’s impact on the economy and monetary policy is increasingly becoming an art of managing expectations. Lars Svensson argues that current level of central bank interest rates matters very little for future inflation and economic activity, while Michael Woodford claims even that apart from expectations, little else matters 20 . For this reason inflation targeters put an ever larger weight to effective communication.
16  “The extra-action strategy responds to a perceived speculative boom with tighter monetary policy - and thus lower output and inflation in the near term - with the expectation of significantly mitigating the potential fallout from a possible future bursting of the bubble. Thus, the strategy seeks to trade off the near-certainty of worse macroeconomic performance today for the chance of disproportionally better performance in the future, on the theory that the repercussions of a major market correction could be highly nonlinear. But the extra-action proposal is by no means a bold call for central banks to prick market bubbles.” - Kohn D. “Monetary Policy and Asset Prices” at “Monetary Policy: A Journey from Theory to Practice - An ECB Colloquium held in honor of Otmar Issing”, 16 March 2006. 17  “Interest rate setting must also be assessed in the light of developments in property prices and credit. Wide fluctuations in these variables may in turn constitute a source of instability in demand and output in the somewhat longer run.” – Norgesbank, Inflation Report, March 2006. 18  Trichet J.C. “Asset price bubbles and monetary policy” Speech of the President of the ECB, Mas lecture, Singapore, 8 June 2005. 19  Fukui T. “New Framework for the Conduct of Monetary Policy: Toward Achieving Sustainable Economic Growth with Price Stability”, Summary of a Speech Given by Toshihiko Fukui, Governor of the Bank of Japan, to the Japan Chamber of Commerce and Industry in Tokyo on 16 March 2006.