spending, which weakens economic activity and increases macroeconomic risk in credit markets. 5 in the extreme, the interaction between asset prices and the health of financial institutions following the collapse of an asset price bubble can endanger the operation of the financial system as a whole. 6 to be clear, not all asset price bubbles create these risks to the financial system. for example, the bubble in technology stocks in the late 1990s was not fueled by a feedback loop between bank lending and rising equity values ; indeed, the bursting of the tech - stock bubble was not accompanied by a marked deterioration in bank balance sheets. but potential for some asset price bubbles to create larger difficulties for the financial system than others implies that our regulatory framework should be designed to address the potential challenges to the financial system created by these bubbles. how should monetary policy respond to asset price bubbles? in order to think about how central banks should respond to asset prices, we need to first remember the objectives of monetary policy. the ultimate purpose of a central bank should be to promote the public good through policies that foster economic prosperity. research in of course, asset price bubbles have additional implications for economic efficiency. departures of asset prices from levels implied by economic fundamentals can lead to inappropriate investments that decrease the efficiency of the economy by diverting resources toward economic activities that are supported by the bubble ( for example, see dupor, 2005 ). for example, during the bubble in tech stocks in the late 1990s, there was overinvestment in some types of high - tech infrastructure. similarly, the bubble in housing prices led to too many houses being built. these distortions to activity across sectors of the economy are a drag on efficiency and hence are a matter of concern above and beyond fluctuations in overall economic activity and inflation. see, for example, mishkin ( 1991 ) and kindleberger ( 2000 ). i have previously discussed the interaction of financial markets and macroeconomic risk ( for example, mishkin, 2007d, 2007e ). see my earlier remarks on the subject ( mishkin, 2007c ). monetary economics describes this objective in terms of stabilizing both inflation and economic activity. indeed, these objectives are exactly what is embodied in the dual mandate that the congress has given the federal reserve. 7 because of their effects on prices and employment, macroeconomic fluctuations due to asset price movements are a concern for monetary policy makers. however, the macroeconomic consequences of asset price fluctuations are unlikely to have long - lasting

through their feedback and critique. i am often impressed by the depth of media analysis and their insightful opinion pieces and leaders. i will also let you in on a secret. my staff tutor me painstakingly before scheduled media interactions, but the depth of my understanding is oftentimes put to test by the media interlocutors who spring questions that we had not thought of. 44. even as the media has been an effective intermediary between the reserve bank and its stakeholders, there are ways in which it can become even more effective. let me make a few suggestions in this regard. 45. sometimes, i find that the competition among the media militates against the quality of analysis. the media disseminates economic and financial news, indeed any news, at three levels. the first level is “ news ” as “ news ” and i can appreciate the race to be the first at this level. the second level is analysis and interpretation and the third level is “ opinion ”. it is at these latter two levels that competition to be “ the first with it ” compromises quality. the media will probably be more effective and value adding if it allows time for digesting the news and thinks through before “ analysis and interpretation ”, and does some research before coming out with “ opinion ”. i am no expert in journalism, but as a consumer of journalism, i think my interests will be better served by more in - depth analysis and critique rather than of the “ get up and go ” variety of opinion dissemination. 46. second, media reporting is sometimes inaccurate, and the risk of misinformation in such cases is high. if dr. reddy labs in hyderabad projects 9 per cent earnings growth and if that is reported under a large headline of “ dr. reddy projects 9 per cent growth ”, even the intelligent reader can be forgiven for believing it to be dr. y. v. reddy, the then rbi governor, projecting 9 per cent gdp growth. surely, more stringent quality control will make the media a more useful and effective “ news intermediator ”. 47. third, as much as i can appreciate the unwavering focus of the media on news that sells, the media has a responsibility also for broadbasing its reporting. you often report what policy makers say on the sidelines of an event in broad headlines and completely ignore the event itself. this tendency, i believe, is unfair to the event organizers as well as to your broader audience