Aust lending approach good: Bernanke

Australia would "have to respond" if a stubbornly high dollar was a drag on the economy, Former US Federal Reserve Chairman Ben Bernanke says.

Dr Bernanke also says prudential policies being used in Australia other Commonwealth countries are "the best approach" to address concerns about house prices.

"If Australia finds that because of the strong Australian dollar that it has high unemployment, then it would have to respond and it would either increase domestic demand or weaken its own currency," he told an audience at the World Business Forum in Sydney on Thursday.

Dr Bernanke said during his time as chairman the US Federal Reserve created a division to monitor developments in the financial system, to identify problems and excessive risk-taking.

"I think the best approach to it is to monitor it closely," he said.

"Australia, the UK and other Commonwealth countries are being particularly good at using various kinds of prudential policies try to address concerns about housing prices, so I think that's the best approach."

He said it's important that the central bank be allowed to use interest rates and monetary policy to achieve its macro economic objectives: jobs and keeping inflation under control.

"If that requires policies to prevent build-ups of risk or mis-pricing of other assets then that's the second best solution I think."