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Policy Responses: Letting it Burn Out, and Other Devices

In: Manias, Panics and Crashes

Author

Listed:
  • Charles P. Kindleberger
  • Robert Z. Aliber

Abstract

If many financial crises have a stylized form, should there be a standard policy response? Assume plethora, speculation, panic; what then? Should the governmental authorities intervene to cope with a crisis and if so at what stage? Should they seek to forestall increases in real estate prices and stock prices as the bubble expands so the subsequent crash will be less severe? Should they prick the bubble once it is evident that asset prices are so high that it is extremely unlikely that increases in rents and in corporate earnings will be sufficiently rapid and large so as to ‘ratify’ these lofty prices? When asset prices begin to fall, should the authorities adopt any measures to dampen the decline and ameliorate the consequences?

Suggested Citation

  • Charles P. Kindleberger & Robert Z. Aliber, 2005. "Policy Responses: Letting it Burn Out, and Other Devices," Palgrave Macmillan Books, in: Manias, Panics and Crashes, edition 0, chapter 10, pages 176-194, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-62804-5_10
    DOI: 10.1057/9780230628045_10
    as

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