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Bubbles and Monetary Policy: To Burst or Not to Burst?

Philipp König () and David Pothier ()

No 55, DIW Roundup: Politik im Fokus from DIW Berlin, German Institute for Economic Research

Abstract: The question of whether monetary policy should target asset prices remains a contentious issue. Prior to the 2007/08 financial crisis, central banks opted for a wait-and-see approach, remaining passive during the build-up of asset price bubbles but actively seeking to stabilize prices and output after they burst. The macroeconomic and financial turbulence that followed the subprime housing bubble has led to a renewed debate concerning monetary policy’s role in maintaining financial stability. This Round-Up provides a brief overview of this topic.

Pages: 5 p.
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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