Former Fed vice chairman Alan S. Blinder examines proposed Fed responses to bubbles. Prof. Blinder distinguishes banking-caused bubbles from other types, such as the tech-stock bubble. Blinder concludes
There are two main conclusions: First, when bubbles are not based on bank lending, the mop-up-after strategy still looks pretty good. When it comes to bank-centered bubbles, however, there are many more things that a central bank can and should do. But raising interest rates to burst the bubble is probably not one of them.
Excellent.
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