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The Federal Reserve should pay more attention to home prices when it sets monetary policy, a leading academic said Monday.

In a new research paper circulated by the National Bureau of Economic Research, Michael Woodford, an economics professor at Columbia University, said housing prices are a good indicator of private-sector expectations of monetary policy and should be tracked to see if the Fed’s interest-rate strategy is on course. ...

The central bank should “lean against” housing prices: being tighter when housing prices unexpectedly rise and easier when prices surprisingly fall. ...

At the moment, policy prescriptions like the well-known Taylor rule have traditional target variables only for inflation and the output gap. In his paper, Woodford suggests that a new variable for housing prices be added to the Fed’s policy rule.

Woodford said he “does not pretend to provide a complete analysis of the problem of a desirable policy response to house booms and busts.”