27 Oct 2011

Should Central Banks Worry About Asset Bubbles?

Economics, Federal Reserve No Comments

A long long time ago, from an ISP far far away, the indefatigable von Pepe was beating me over the head about my reckless CPI “calls,” telling me that loose monetary policy would show up all over the place. He sent me all kinds of academic papers.

Well I finally took the time to write up some of the big-picture results, since Bernanke gave me a good news hook. Here’s the result. From the intro:

In the present article, I’ll summarize some of the key mainstream literature on the theoretical and practical case for including asset prices in a measurement of “inflation” (by which these economists mean “rising prices”). As we’ll see, this isn’t some obscure, crankish Austrian obsession, but actually is quite defensible on even neoclassical grounds.

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