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Asset Price Instability and Policy Responses: The Legacy of Liberalization

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  • Stephen Bell
  • John Quiggin

Abstract

The debate about the dynamics and potential policy responses to asset inflation has intensified in recent years. Some analysts, notably Borio and Lowe, have called for 'subtle' changes to existing monetary targeting frameworks to try to deal with the problems of asset inflation and have attempted to developed indicators of financial vulnerability to aid this process. In contrast, this paper argues that the uncertainties involved in understanding financial market developments and their potential impact on the real economy are likely to remain too high to embolden policy makers. The political and institutional risks associated with policy errors are also significant. The fundamental premise that a liberalised financial system is based on 'efficient' market allocation cannot be overlooked. The corollary is that any serious attempt to stabilize financial market outcomes must involve at least a partial reversal of deregulation
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Suggested Citation

  • Stephen Bell & John Quiggin, 2006. "Asset Price Instability and Policy Responses: The Legacy of Liberalization," Journal of Economic Issues, Taylor & Francis Journals, vol. 40(3), pages 629-649, September.
    • Handle: RePEc:mes:jeciss:v:40:y:2006:i:3:p:629-649
    DOI: 10.1080/00213624.2006.11506938
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Trifecta
      by John Quiggin in Crooked Timber on 2013-01-17 01:11:39
    2. Trifecta
      by John Quiggin in John Quiggin on 2013-01-17 01:13:15

    Citations

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    Cited by:

    1. Pol, Eduardo, 2009. "Regulating Financial Innovations Without Apology," Economics Working Papers wp09-01, School of Economics, University of Wollongong, NSW, Australia.
    2. Meng Chen & Haslindar Ibrahim & Zhilin Chen & Xuke Li, 2025. "Interest Rate Marketization and Asset Prices Transmission Channel: Dynamic Impacts on the Chinese Economy," Business and Economic Research, Macrothink Institute, vol. 15(3), pages 1-24, December.
    3. John Quiggin, 2013. "The State of Economics in 2012: Complacency Amid Crisis," The Economic Record, The Economic Society of Australia, vol. 89, pages 23-30, June.

    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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