How should we respond to asset price bubbles?
AbstractThis paper examines how economic policy should respond to possible asset price bubbles. Three questions are considered: • Are some asset price bubbles more problematic than others? • How should monetary policy respond to asset price bubbles? • What other types of policy responses are appropriate? I conclude that asset price bubbles associated with credit booms present particular challenges because their bursting can lead to episodes of financial instability that have damaging effects on the economy. Monetary policy should not react to asset price bubbles per se, but rather to changes in the outlook for inflation and aggregate demand resulting from asset price movements. However, regulatory policies and supervisory practices should respond to possible asset price bubbles and help prevent feedback loops between asset price bubbles and credit provision, thereby minimising the damaging effects of bubbles on the economy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Banque de France in its journal Financial stability review.
Volume (Year): (2008)
Issue (Month): 12 (October)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lawrence J. White, 2011.
"Preventing Bubbles: What Role for Financial Regulation?,"
Cato Journal, Cato Institute, vol. 31(3), pages 603-619, Fall.
- Lawrence J. White, 2011. "Preventing Bubbles: What Role for Financial Regulation?," Working Papers 11-08, New York University, Leonard N. Stern School of Business, Department of Economics.
- Alan S. Blinder, 2010.
"The Squam Lake Report: Fifteen Economists in Search of Financial Reform,"
1243, Princeton University, Department of Economics, Center for Economic Policy Studies..
- Blinder, Alan S., 2010. "The Squam Lake Report: Fifteen economists in search of financial reform," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 892-902, October.
- Milas, Costas & Naraidoo, Ruthira, 2012. "Financial conditions and nonlinearities in the European Central Bank (ECB) reaction function: In-sample and out-of-sample assessment," Computational Statistics & Data Analysis, Elsevier, vol. 56(1), pages 173-189, January.
- Erlend Nier, 2009. "Financial Stability Frameworks and the Role of Central Banks," IMF Working Papers 09/70, International Monetary Fund.
- Charles G. Leathers & J. Patrick Raines, 2012. "Intuitive psychology, natural experiments, and the Greenspan-Bernanke conceptual framework for responding to financial crises," International Journal of Social Economics, Emerald Group Publishing, vol. 39(4), pages 281-295, March.
- Nan-Kuang Chen & Han-Liang Cheng & Ching-Sheng Mao, 2011.
"House Price, Mortgage Premium, and Business Fluctuations,"
192011, Hong Kong Institute for Monetary Research.
- Chen, Nan-Kuang & Cheng, Han-Liang & Mao, Ching-Sheng, 2012. "House price, mortgage premium, and business fluctuations," Economic Modelling, Elsevier, vol. 29(4), pages 1388-1398.
- Ravn, Søren Hove, 2014. "Asymmetric monetary policy towards the stock market: A DSGE approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 24-41.
- Demirguc-Kunt, Asli & Serven, Luis, 2009. "Are All the Sacred Cows Dead? Implications of the Financial Crisis for Macro and Financial Policies," Policy Research Working Paper Series 4807, The World Bank.
- Ruthira Naraidoo & Ivan Paya, 2010. "Forecasting Monetary Rules in South Africa," Working Papers 201007, University of Pretoria, Department of Economics.
- Andreas Hoffmann & Gunther Schnabl, 2014. "Monetary Policies of Large Industrialised Countries, Emerging Market Credit Cycles and Feedback Effects," CESifo Working Paper Series 4723, CESifo Group Munich.
- Tobias Adrian & Hyun Song Shin, 2008.
"Financial intermediaries, financial stability, and monetary policy,"
346, Federal Reserve Bank of New York.
- Shin, Hyun Song & Adrian, Tobias, 2008. "Financial intermediaries, financial stability and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 287-334.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael brassart).
If references are entirely missing, you can add them using this form.