The RBA's blunt bubble knife

Using interest rates to tackle asset bubbles may wreak significant damage on the broader economy, and time will tell if the risk is too high for the RBA to tolerate.

The debate over whether the RBA should use monetary policy to resist burgeoning asset price bubbles is well-trodden territory, which I have visited more than most. When I first started thinking about this subject I landed in the camp of those who felt that a central bank that autocratically lifted rates to "lean against” asset price increases – in, say, equities or housing – that were being fuelled by unseemly credit growth (eg. via leveraged buyouts or a mortgage boom) could do more harm than good.


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