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Rate rises to combat housing price bubbles

10/02/2010

Central banks in future are likely to adopt a more “responsive” approach to monetary policy that attempts to detect the build of financial instability (or asset bubbles) and to act in sufficient time for a tighter monetary policy to make an impact, a trio of Reserve Bank of Australia officers, including the governor Glenn Stevens, argued in a paper published yesterday.

In their paper Stevens and colleagues revisit the long-running debate over the place for conventional monetary policy in tackling asset bubbles. “There is a large distance on the spectrum between passively accepting asset and credit developments and aggressively seeking to reverse them“, wrote Stevens et al. “Even with the development of other tools, it is unlikely to be credible for central banks not to move, in the next decade, at least somewhat in the ‘responsive’ direction.”

Source: Banking Day



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