Why policymakers might care about stock market bubbles
Paul Gomme ()
Economic Commentary, 2005, issue May
This Commentary makes a case for Fed action in the event of a stock market bubble. Because stock market prices serve as a signal to business managers to invest, bubbles can mislead managers into investing when it is not profitable. The overinvestment, which becomes apparent after the bubble bursts, can lead to a period of low investment, which can cause a recession. Policymakers may wish to step in to end a bubble before stock prices get too far out of line relative to their fundamentals.
Keywords: Stock market; Stock - Prices (search for similar items in EconPapers)
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
https://www.clevelandfed.org/~/media/content/newsr ... bbles%20pd.pdf?la=en Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:fip:fedcec:y:2005:i:may15
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in Economic Commentary from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Series data maintained by 4D Library ().