a)

Using Rudebusch's (2005) decision tree, explain in detail the economic rationale taken account of by a central banker when deciding to deflate an asset-price bubble.

[15 marks]

b)

Describe

the monetary policy stance

(s) pursued by the Bank of England (BoE) during the period 2001 2008. Using Rudebusch's (2005) decision tree, justify and explain the approaches to monetary policy the Bank undertook during that period.

[35 marks]