By William Curt Hunter, George G. Kaufman, Michael Pomerleano
In either the industrialized and constructing worlds, a particular function of the final 20 years has been lengthy buildups and sharp collapses in asset markets equivalent to inventory, housing, and alternate markets. The volatility has sparked excessive debate in educational and coverage circles over the fitting financial and regulatory reaction to dramatic marketplace shifts.This ebook examines asset fee bubbles to additional our realizing of the reasons and implications of monetary instability, concentrating on the potential for principal banks and regulatory businesses to hinder it. The e-book grew out of a convention together subsidized via the Federal Reserve financial institution of Chicago and the realm financial institution crew in April 2002.
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Extra resources for Asset Price Bubbles: The Implications for Monetary, Regulatory, and International Policies
Without confidence that bubble conditions exist, policymakers must be wary about responding to an apparent asset price bubble because the response may result in more harm than good. This does not mean that there is no role for the public policymaker. As we have seen with the president’s recent proposals, such as the 10-point plan for financial disclosure and reforms of rules governing 401(k) retirement accounts, public policies can help remove barriers to the effective exchange and provision of information, thereby strengthening markets and reducing the likelihood of asset mispricing.
This objective raises considerable difficulties, because it touches on the way in which the performances of medium- and long-term funds and life insurance companies are assessed. In other words, this objective concerns the accounting standards and practices they use. It might imply that some rules and standards would be adapted to the medium- and long-term horizons used by these entities. Avenue 3: Diversify the Risk Management Tools of Financial Institutions As I mentioned earlier, even the best techniques can have adverse effects when used on a standard basis and by all participants.
During the five-year period before the peak in 2000, the increase in equity prices was well within the historical movements of the other five earlier episodes. One question is whether there was some way to know that the asset price increase during the 1990s was a bubble or economic fundamentals. S. economy as new technologies were altering the economic landscape. During this period, for example, labor productivity began growing at a much faster rate than in the past two decades (figure 5). The setback in 2000 may have reflected a change in fundamentals, Asset Price Bubbles, Information, and Public Policy Figure 1: Is It a Bubble?