The Global Financial Crisis prompted much reflection on how monetary policy can be used to promote financial stability and temper the effects of the next crisis. During the Max Bell School of Public Policy's Choosing the Right Target conference, Sylvain Leduc of the Federal Reserve Bank of San Francisco presented his paper on the merits of incorporating asset prices into the inflation targeting framework.
Sylvain Leduc is among the economists who believe that financial stability should become an objective of the Bank of Canada's monetary policy, and that gradually implementing this change could be compatible with today's inflation targeting regime. In this paper Leduc argues that while the Bank of Canada shouldn't resort to using interest rates to 'pop' asset price bubbles, macroprudential policies would make for a more resilient economy. Jean-Francois Rouillard's discussion largely concurs with this diagnosis.
