Wednesday, May 21, 2008


The issue of "bubbles" in asset prices, and whether and how monetary policy should respond to them, is getting renewed consideration.

Federal Reserve Governor Frederic Mishkin gave a speech last week examining the question "How Should We Respond to Asset Price Bubbles?" He argued - consistently with current policy - that the Fed should not attempt to pop bubbles with interest rate increases, but they should take them into account in their role as overseer of the banking system.

The Wall Street Journal ran an interesting feature on bubble research at Princeton, where Ben Bernanke was chairman of the economics department before going to Washington.

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