Does a low interest rate support private bubbles?
AbstractI examine the argument that a low interest rate policy can lead to â€œovervaluedâ€ private assets or privately created bubbles (private bubbles). Using the standard approach to bubbles, I find that a policy of a low real interest rate may support private bubbles but a policy of a low nominal interest rate may actually reduce the importance of private bubbles. I then attempt a less conventional way of modeling bubbles focusing on the supply of private bubbles. The paper uses results from the Friedman rule literature, the fiscal approach to the price level and the literature on rational bubbles.
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Bibliographic InfoPaper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number vuecon-12-00010.
Date of creation: 11 Dec 2012
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Interest Rate Policy; The Friedman Rule; The Fiscal Approach to Bubbles.;
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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