Monday, April 18, 2011

Otmar Issing on consensus views (fg)

Quote from Otmar Issing's speech 'Lessons for Monetary Policy. What should be Consensus' at IMF.
My question is—always, and not only from hindsight–whether this [Sticking to Inflation Targeting and to the benign neglect view of dealing with asset prices] is all. Because if this is your position, that monetary policy should deal with asset prices only on the way down, it is a totally asymmetric approach. It implies that as long as asset prices go up, the central bank is saying, it's not our business. If asset prices collapse after a bubble bursts, then the central banks have to come to the rescue. They are the savior. I think this asymmetric approach implies the risk of a series of ever-increasing bubbles, because you never correct the causes that have led to the bubble.