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Part of the problem is that the central bank only measures inflation by consumer prices, and not investment asset prices. As long as consumer prices rise slowly

Part of the problem is that the central bank only measures inflation by consumer prices, and not investment asset prices. As long as consumer prices rise slowly, central bankers feel no hesitation in following loose monetary policy. This is true even as stocks and real estate prices take off into the stratosphere, causing potential instability.

sridharvembu 18y ago
Recently, Bernanke seems to have come around to accepting that asset prices are important to monetary policy, breaking a long-held Fed orthodoxy, dating back to Greenspan. Contrast his speech in 2002, where he outlines the"don't burst a bubble but clean up the aftermath" philosophy: http://www.federalreserve.gov/BoardDocs/Speeches/2002/20021015/default.htm http://www.federalreserve.gov/BoardDocs/Speeches/2002/200210... with this recent speech in October 2008: http://business.smh.com.au/business/bernanke-signals-new-approach-to-bubbles-20081017-52kv.html http://business.smh.com.au/business/bernanke-signals-new-app...