Policy Responses: Letting it Burn Out, and Other Devices

Charles P. Kindleberger and Robert Z. Aliber

Chapter 10 in Manias, Panics and Crashes, 2005, pp 176-194 from Palgrave Macmillan

Abstract: Abstract If many financial crises have a stylized form, should there be a standard policy response? Assume plethora, speculation, panic; what then? Should the governmental authorities intervene to cope with a crisis and if so at what stage? Should they seek to forestall increases in real estate prices and stock prices as the bubble expands so the subsequent crash will be less severe? Should they prick the bubble once it is evident that asset prices are so high that it is extremely unlikely that increases in rents and in corporate earnings will be sufficiently rapid and large so as to ‘ratify’ these lofty prices? When asset prices begin to fall, should the authorities adopt any measures to dampen the decline and ameliorate the consequences?

Keywords: Interest Rate; Hedge Fund; Government Bond; Real Estate Investment Trust; Deposit Insurance (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-62804-5_10

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DOI: 10.1057/9780230628045_10

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