(...) Let me conclude.
Asset prices are currently at very elevated levels. In part this is a consequence of long-running fundamental trends in interest rates. Yet there is substantial empirical evidence that monetary policy encourages risk-taking in the financial system, and the risks of an asset price correction are increasing.
Dealing with such risks solely through macroprudential policy is challenging. The effectiveness of macroprudential policies is curtailed by the presence of foreign banks and non-bank financial firms lending to households. Moreover, borrower-based measures can exacerbate the impact on inequality arising from housing shortages and housing price appreciation.
In such a situation, it is preferable for monetary policy to incorporate financial stability concerns into its policy deliberations. This is something that has long been recognised in our two-pillar strategy, which we would be well advised to maintain if not enhance. (...)
Asset prices are currently at very elevated levels. In part this is a consequence of long-running fundamental trends in interest rates. Yet there is substantial empirical evidence that monetary policy encourages risk-taking in the financial system, and the risks of an asset price correction are increasing.
Dealing with such risks solely through macroprudential policy is challenging. The effectiveness of macroprudential policies is curtailed by the presence of foreign banks and non-bank financial firms lending to households. Moreover, borrower-based measures can exacerbate the impact on inequality arising from housing shortages and housing price appreciation.
In such a situation, it is preferable for monetary policy to incorporate financial stability concerns into its policy deliberations. This is something that has long been recognised in our two-pillar strategy, which we would be well advised to maintain if not enhance. (...)
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