Friday, August 28, 2009

Should central banks target stock prices?

That is the title of a paper just published by Paul De Grauwe, on behalf of the Centre for European Policy Studies, Burssels, Belgium:
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Based on a more academic Working Document, it asks whether central banks should target stock prices so as to prevent bubbles and crashes from occurring.

This was as unthinkable only a few weeks ago as Lord Turner championing the idea of the Tobin Tax (see
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While I have long argued for the Tobin Tax, I maintain that targeting stock prices alone is half-baked. We need a system of independent, comprehensive watch on global stability such as outlined in my article in the New York Times Online ("DealBook" section) some weeks ago.

Not only can an independent comprehensive view never be provided by individual countries or by individual measures such as targeting stock prices, doing such things would be simply counter-productive in terms of system stability. Sphere: Related Content

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