Should Central Banks Deflate Asset Bubbles? Clean vs Lean, Svensson's Cost-Benefit Test and Macroprudential Policy

Deep End Era. Engineering with Sankalp · Oct 29, 2026 · 1h 13m

Core consumer price inflation is sitting dead on target at two point zero percent, manufacturing output is softening, and yet metropolitan house prices and leveraged commercial property valuations are climbing at fourteen percent a year. Should the central bank hike interest rates above what inflation targeting requires in order to deflate the asset boom before it turns into a banking crisis? We build the theory and evidence of monetary policy and asset bubbles from first principles: the Bernanke-Gertler vs BIS Jackson Hole debate, Svensson's quadratic loss cost-benefit math, Galí's rational…