Tuesday, October 23, 2007

Helping the Fed Target Asset Prices


clipped from blogs.wsj.com

Joseph Carson, director of global economic research at Alliance Bernstein, thinks he has the answer. He’s created a “broad price index” combining consumer prices, producer prices and asset prices. “The weighting scheme is designed to approximate the relative importance of each sector in the overall economy, with consumer prices given the dominant share, followed by smaller shares allotted to producer, real estate and equity prices,” he says.

broad_c_20071023095202.jpg

The index registered strong surges in both 1999-2000 and 2004-2005, a signal that the Fed’s monetary policy was too easy at the time, he says. On the other hand, at present it is growing at about the same rate as core consumer prices, suggesting Fed policy is about right.

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