He found that movements in interest rates around their long-run level could be explained by just the level of inflation relative to its target, and imbalances between the level of demand in the economy and the capacity of the economy to produce output. 4  8  http://www.kc.frb.org/publicat/Sympos/2005/PDF/King2005.pdf. BIS Review 21/2009  Asset prices and stock imbalances of the kind we have seen on the balance sheets of banks, households and companies are conspicuous by their absence in the Taylor Rule. Whether policymakers actually slavishly follow the Taylor Rule, or it simply represents a good description of how we behave is largely immaterial. Either way, the default position of policymakers has been that interest rates should not be used to choke off a boom in financial markets. That non-interventionist doctrine was based on two key judgements. First, that the costs of leaning against imbalances in financial markets were high. It was believed that policymakers would find it difficult to differentiate between movements in asset prices that could be justified by fundamentals and those which reflected bubbles. The central bank which frequently responded to movements in asset prices would often as not be doing so mistakenly. By the time that the central bank was confident that asset prices were unsustainable it would typically be too late to act. An increase in interest rates late in the day could prove counter-productive: the bubble might well have burst by the time the change in policy had filtered into aggregate demand.

The combination of high inequality and low mobility is problematic, because it means that being born into a low-income family is more consequential today than in the past. Since education is a key determinant of upward mobility, one way to increase economic mobility in the United States would be to increase overall post-secondary educational attainment. There are, however, a number of important barriers to achieving that goal. First, many high school students and their parents appear to lack accurate information about the returns obtained from a college education. New York Fed research shows evidence of systematic underestimation of the average benefits—and overestimation of costs—of a college education, with larger biases among lower-income and non-college households. Research by Caroline Hoxby and Sarah Turner shows that among low-income high school students, even very high achievers are poorly informed about the academic options that are available and their effects on career opportunities. This research finds that the provision of relevant information can lead to markedly better outcomes. A second impediment is the lack of preparedness among new college entrants, with large numbers of those students needing remedial courses that earn no college credit. Low readiness contributes to persistently low college completion rates, especially among lower-income, parttime, and nontraditional students. Higher dropout rates, in turn, contribute to a substantial reduction in the net expected and realized returns from college attendance. The third major barrier to college attendance and completion is the rise in the cost of a college education.