Should monetary policy lean against the wind of the expansion phase of credit upturns, in order to moderate boom conditions? Clearly, no one would question the desirability of leaning enough to reduce associated inflation pressures.
But should the reaction be stronger than that which near-term inflation control might seem to warrant? In particular, should policy be tighter than otherwise, given evidence of growing “imbalances” in the real economy or increasing systemic exposures in the financial system? Or should an alternative strategy be relied upon to deal with such problems. In particular, should monetary policy be content with trying to clean up afterwards, once the boom has turned to bust? Indeed, should central banks go even further and preemptively ease policy in order to short circuit the bust altogether?.