Central banks and house prices in the run-up to the crisis

The financial crisis and the role played within it by fluctuations in house prices has reopened the debate about whether monetary policy should respond to asset prices. This paper investigates how the central banks of the euro area, the UK and the US considered and understood the trends in house prices in the six or seven years preceding the crisis, and how they have analysed those developments since the crisis. It suggests that these central banks, particularly the Anglo-Saxon ones, might have been able to take useful action if they had devoted more intellectual resources and time to analysing the possible misalignment of house prices; and argues that the case for leaning against the wind is still open.