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Interest Rates and House Prices: Pill or Poison?
Wild swings in asset prices over the past 20 years and the associated boom-bust cycles have sparked considerable debate about how monetary policy might play a stabilizing role (see, for example, Rudebusch 2005). Some policymakers, such as then-governor of the Federal Reserve Ben Bernanke (2002), argued that interest rate policy should focus exclusively on achieving the Fed’s dual mandate of stable prices and maximum employment. That is, threats to the stability of the financial system should be dealt with separately through financial regulation and supervision. More recently in the aftermath of the Great Recession, ... (full story)