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Speech
Should Monetary Policy Prevent Bubbles
Remarks by Charles L. Evans, President and Chief Executive Officer, Federal Reserve Bank of Chicago Conference Banque de France - Federal Reserve Bank of Chicago "Asset Price Bubbles and Monetary Policy" Paris, France
Working Paper
On Interest Rate Policy and Asset Bubbles
In a provocative paper, Gal (2014) showed that a policymaker who raises interest rates to rein in a potential bubble will only make a bubble bigger if one exists. This poses a challenge to advocates of lean-against-the-wind policies that call for raising interest rates to mitigate potential bubbles. In this paper, we argue there are situations in which the lean-against-the wind view is justified. First, we argue Gal?s framework abstracts from the possibility that a policymaker who raises rates will crowd out resources that would have otherwise been spent on the bubble. Once we modify Gal?s ...
Briefing
The Roots of ‘Bubbly’ Recessions
A downturn following the collapse of an asset bubble ? an episode of speculative booms in asset prices ? can be severe and sustained, with output and employment often lower than in the prebubble economy. This Economic Brief considers some possible theoretical explanations. It argues, based on insights from a simple economic model, that the interaction among financial frictions, wage rigidity, and the constraints of monetary policy near the zero lower bound is a key source of inefficiency in large bubbles. One potential remedy is to regulate speculative investment on bubbly assets so that ...
Journal Article
What Happens When Bubbles Pop?
At the Richmond Fed highlighted research: "Asset Bubbles and Global Imbalances." Toan Phan and Daisuke Ikeda. American Economic Journal: Macroeconomics, forthcoming.
Briefing
Asset Bubbles and Global Imbalances
What caused the housing boom and bust of the early 2000s? Capital inflows from emerging markets to developed economies can contribute to the formation of bubbles in asset prices. Those bubbles encourage the accumulation of debt, and the deleveraging of that debt exacerbates the decline in economic activity when the bubble bursts.