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Should the Fed intervene in Asset Bubbles?
Finance & Accounting
Pages 35 (8785 words)
Student's Name & Course No.: Professor's Name: Asset Bubbles (Should the Fed Intervene?) 12 March 2011 1. INTRODUCTION The current global recession has its origins in the housing mortgage meltdown of the United States that started in December 2007. Prior to that, specifically in the period between years 2000 to 2006, residential housing prices in the US almost doubled.
Since hindsight offers perfect or a 20/20 vision, many people opined the US central bank failed in its task to promote healthy and sustainable economic growth for the country, and by extension of being a multi-trillion dollar economy, for the entire world. The advent of a global economy has made potential economic disruptions like bursting of asset bubbles a serious matter to contend with. Economists, politicians and policy makers now pay more attention to the formation of asset bubbles, how these start, how these bubbles could be prevented from growing bigger and what actions can be considered as appropriate if a bubble is clearly identified. It must be admitted that despite the experience of several prior asset bubbles, policy options are still woefully limited. Economists and academic theorists are conflicted on what responses are considered to be the most appropriate in such situations. The experience with asset bubbles is not fairly recent since the phenomena had existed since the middle Renaissance period. ...
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