Share prices, house prices and monetary policy

Abstract

Recent developments in stock and house prices revived the debate on the role of asset prices in the conduct of monetary policy. The article first explores the links between asset price fluctuations, macroeconomic developments and monetary policy, highlighting the possibility of asset price booms and bursts in an environment of stable consumer prices and the challenges for monetary policy. The problem of identification of “bubbles” is then illustrated by an assessment of recent developments in stock prices in the United States and the euro area and in house prices in the euro area, with special attention for the fast-increasing house prices in some countries and for the Belgian situation. Finally, the article briefly explains how asset prices are taken into account in the monetary policy strategy of the Eurosystem.monetary policy, transmission process, stock prices, residential property prices, Eurosystem