Professional Documents
Culture Documents
Presented by:
Phillip Freiberg .
Kirti Kakkar.
Tu Ngo.
Rajveer Diddan
AGENDA
During the current financial crisis, various economists and market
commentators have repeatedly asked for monetary authorities to
start pursuing restrictive monetary policy whenever there are
case of asset “manias” and thus prick asset market “bubbles”
(including stock market “bubbles”).
Bordo and Jeanne suggest that restrictive monetary policy in the face of a stock market
boom is optimal “…when the risk of a bust is large and monetary authorities can defuse it
at a relatively low cost.”
“A cost shock that increases inflation may require a restrictive monetary policy in order to
prevent relative price increases from snowballing into an inflationary spiral .”
Restrictive monetary policy has shown its effectiveness with considerable force. Germany,
which experienced hyperinflation during the Weimar Republic and never forgot, has
maintained a very stable monetary regime and resulting low levels of inflation
Why Not Restrictive monetary Policy?
Don't respond to asset prices per se rather respond to
changes in the outlook for inflation and aggregate demand
resulting from asset price movements .
Reasons:
>>There are many asset prices, and at any one time a bubble
may be present in only a fraction of assets.
Considerations
“In US monetary policy was highly restrictive from 1928 to September 1929
and this restrictive monetary policy is cited by economic historians as the
initial cause of the Great Depression”
“"I couldn't have not lost money last year unless I was
100% in cash ”
For example a higher oil price and speculative capital inflows
driving Russian appreciated the Russian rubble. But while the
strong rouble may be a positive signal for investors, it has created
its own problems: export competitiveness and, worse, the
possibility of a new asset bubble worry experts. (FT)
Chieese the renminbi is undervalued, and speculators can
borrow overly cheaply in New York to finance hot money flows
into China and other emerging markets. One consequence is a
huge bubble in China's commercial and residential real estate
markets, which is forcing the PBC to try to curb the expansion of
domestic bank credit.
Methods:
Follow the Countries