Quantitative easing tilts the balance between monetary and macroprudential policy

Quantitative easing by central banks has stimulated risk-taking in financial markets and contributed\nto a liquidity-driven boom in asset prices. It puts the relation between monetary policy\nand financial stability into a new perspective. We show by a regression analysis for a panel of 11\nadvanced economies that an asset price bust has adverse effects on inflation. The effect of stock\nprices and corporate bond rates on inflation is significant, also if we control for developments in\ncredit. This insight implies that in conducting and implementing quantitative easing, central\nbanks should closely monitor and take into account asset bubbles.