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Should The Fed Regulate Asset Prices?

December 13th, 2018 · No Comments

  • The idea might seem crazy at first, but it follows logically from a model in which beliefs about future asset prices (‘animal spirits’) have real effects on output and employment.
  • The case is reinforced when these animal spirits can feed on themselves and become self-fulfilling prophesies.
  • We think a case can be made for this with the positive feedback of beliefs about the effects of the recent tax cuts.
  • More ominously though, this also opens the possibility that the present sell-off will feed on itself and produce real effects on output and employment.

Source: Should The Fed Regulate Asset Prices? | Seeking Alpha

Tags: Monetary policy · The Markets