Greetings colleagues.

Perhaps someone can steer me in the right direction. It is a common 
criticism of Taylor rules that central banks' focus on inflation 
resulted in their taking their eyes off asset prices. I sometimes 
encounter assertions that Austrian economists knew all about the 
danger of keeping interest rates too low for too long while inflation 
was on target and thereby creating a ruinous asset bubble. Easy money 
causes inflation, and the definition of inflation seems to have 
widened to include asset prices (rather than just the prices of newly 
produced outputs of goods and services).

I assume this claim relates to the virtues of conducting a "neutral" 
monetary policy that, according to Hayek, would not distort price 
signals (especially the interest rate). I recall that in the 1930s 
Keynes and his followers argued that this policy was so vague as not 
to be implementable.

We can all opine that Greenspan was too easy for too long (or that 
Bernanke was too tight too quickly). Is there a policy rule, Austrian 
or otherwise, that is explicit about asset prices; e.g., one that 
gives 50% weight to inflation and 50% weight to asset prices? Is it 
associated with any school of thought or notable economist? And what 
is the formula for gauging whether asset markets are overheating and 
whether the low interest rate is the cause? Or are those who say that 
they have long predicted dangerous asset inflation simply arguing 
that policy-making should be an informal judgement call and that they 
would have got it right?

Bruce Littleboy