IDEAS home Printed from https://ideas.repec.org/a/fip/fedcec/y2005imay15.html
   My bibliography  Save this article

Why policymakers might care about stock market bubbles

Author

Listed:
  • Paul Gomme

Abstract

This Commentary makes a case for Fed action in the event of a stock market bubble. Because stock market prices serve as a signal to business managers to invest, bubbles can mislead managers into investing when it is not profitable. The overinvestment, which becomes apparent after the bubble bursts, can lead to a period of low investment, which can cause a recession. Policymakers may wish to step in to end a bubble before stock prices get too far out of line relative to their fundamentals.

Suggested Citation

  • Paul Gomme, 2005. "Why policymakers might care about stock market bubbles," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
    • Handle: RePEc:fip:fedcec:y:2005:i:may15
    as

    Download full text from publisher

    File URL: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/2005/ec-20050515-why-policymakers-might-care-about-stock-market-bubbles-pd.pdf
    File Function: Full Text
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Stock market; Stock - Prices;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcec:y:2005:i:may15. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.