News Release
John Vickers Speaks on Asset Prices and Monetary Policy
22 Spetember 1999
John Vickers, Bank of England Chief Economist and a member of the Monetary Policy Committee, today presented a paper on 'Monetary Policy and Asset Prices' at a conference at Oxford University.
He asked how should - and how do - asset prices affect monetary policy? In particular:
- Should asset prices be in the measure of inflation targeted by monetary policy?
- What can asset prices tell us directly about monetary policy?
- What do asset prices add to other indicators that inform monetary policy?
The assets in question include both financial assets such as bonds and shares, and residential property.
Mr Vickers said: "Asset prices matter for monetary policy simply because they help inform judgments about inflation prospects."
Arguing that asset prices should not be a target of monetary policy, Mr Vickers went on to examine the use of asset price information in monetary policy. He said:
'Monetary policy requires continuous assessment of evolving balance of risks to prospective inflation. House price developments are a part of this - if only a relatively small part of a larger picture - because, like other asset price developments, they add to the other information available to guide judgments about inflation prospects. So house prices are not an independent concern on monetary policy. Like every other economic indicator, they matter to the extent - and only to the extent - that they say something about overall inflation prospects.'
'In a number of countries, including the UK, recent times have seen sharply rising asset prices while the inflation of consumption goods and services prices has been subdued. Does asset price inflation mean that monetary policy should be tight even if current inflation is low? And if asset prices were to fall sharply, should monetary policy be loose even if current inflation was higher?'
'Answers to questions of this kind flow from the straightforward proposition that monetary policy should be set so that prospective inflation of consumption prices is on target.'
Notes for Editors
- The full paper is available from Public Enquiries Group, Bank of England (+44 171 601 4012) and is on the Bank's website at www.bankofengland.co.uk/speeches/speech54.pdf
- John Vickers was speaking at the Money, Macro and Finance Group 31st Annual Conference at Oxford University.
Key Resources
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Speech Download PDF |
