On the Fears of Bubbles

Katharina recently posted some of her thoughts on the developments in asset markets since the start of the FED’s different unconventional monetary policy programs. I honestly do not know how to go about answering the post, as I personally am unable to get much out of the FT report. But let me give it a try. A couple of months back I posted something dubbed “How destructive are asset bubbles really?”, which I find myself still mostly agreeing with. Of course a lot of that argument is based on monetary policy being able to be effective, which might be somewhat limited given we’re up against the ZLB, but right now is not the place to go into that discussion again. When it comes to identifying whether a bubble is indeed forming or not, I shared some of my thoughts in this post on “The Science of Bubble Spotting”, which probably provides a decent starting point to build on. So let’s get into it.

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