American Economic Review Vol. 115 No. 8 2025
Monetary Policy and Rational Asset Price Bubbles: Comment
open access
Abstract
Galí (2014) showed that a monetary policy rule that raises rates when bubbles exceed some steady-state benchmark can paradoxically lead to larger deviations from steady state. Nevertheless, this comment shows that a central bank can always dampen a bubble by setting a higher-than-expected rate, although it may have to raise the rate aggressively. This is a different point from the Miao, Shen, and Wang (2019) comment on Galí (2014). They showed that when the central bank targets a different steady state than Galí considered, raising rates when bubbles exceed this alternative benchmark leads to smaller deviations from steady state.
- DOI
- 10.1257/aer.20230983
- Volume
- 115
- Issue
- 8
- Pages
- 2819-2847
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref