By ignoring assets, we're able to give parents a quick estimate of what they'll be expected to pay toward the cost of college at most colleges.
Central bankers ignore asset prices at their peril.
Financial planners tend to ignore asset location for two reasons.
When we do emerge from this recession, the idea that central banks should ignore asset prices must surely be confined to the history books.
If bubbles can burst with so few nasty effects, central banks can indeed ignore asset prices and focus solely on inflation.The jury is still out, however.
Monetary policy is always dealing with uncertainty; this is no reason to ignore asset prices.Suppose central bankers followed the report's advice, where would interest rates be?
In all three, although inflation undershoots its target in the short term, in the long term output and inflation prove less variable than if central banks ignore asset prices.The new paper tackles criticisms of their earlier work.
No wonder most central bankers conclude that it is safer (for themselves, if not for the economy) to let them burst of their own accord.But these are not good reasons for central banks to ignore asset prices.
Still, a small rise in interest rates would still leave monetary policy very loose, while serving as a warning to investors and homeowners that shares and house prices cannot keep rising for ever.In a recent article in the Wall Street Journal, Otmar Issing, the chief economist at the European Central Bank, argued that central banks cannot afford to ignore asset prices.
For instance, it might change the current perception that the Federal Reserve responds only to falls in share prices, which encourages greater risk taking.However, those who argue that central banks should ignore asset-price bubbles seem to have won one powerful argument of late.
Indeed, as economies become ever more sophisticated, and real economic output ever more difficult to measure accurately, prudent makers of monetary policy will have to monitor an ever-broader set of indicators, equity prices included.The idea that central bankers should ignore asset prices is surely nonsense.
