olicy strategies that include a prominent role for money and credit considerations are better suited to “lean against the wind” (De Grauwe, Mayer and Lannoo, 2008). By giving more prominence to money and credit in their strategy, central banks can better identify the emergence of medium-term risks to macroeconomic stability that result from imbalances in both domestic and global markets. By incorporating money and credit conditions in their policy in a systematic way, central b
anks can adopt a somewhat tighter policy stance in the face of an inflating asset market than they would otherwise pursue if they had been confronted with a similar macroeconomic outlook under more normal asset market conditions. However, the current economic structure has developed and changed since the paper was published 10 years ago, so the policy of “leaning against the wind” that may have been effective in the past, may not be as effective in the present day.

Among the disadvantages of using monetary policy to control financial risk is the possibility that this attempt may easily enter into conflict with other goals already entrusted to policymakers. This is because monetary policy as a tool is too blunt to prick bubbles effectively (Evans, 2009). For example, monetary policy cannot be targeted precisely, and will affect other financial and macroeconomic variables beyond just the set of asset prices in question. This means that the interest rate increase necessary to “lean against” a bubble may be so large as to exert a negative effect on output as the general level of prices may fall drastically in the long run (Stark, 2009). The possible conflict in the pursuit of the goals, in turn, may lead to a lack of accountability, since deviations from one goal could be justified in terms of the pursuit of other goals. More importantly, perhaps, is the fact that using monetary policy to contain asset bubbles can be interpreted as a commitment to smoothing out asset price fluctuations, thereby dampening market sign