In the context of a speculative bubble, the central bank’s efforts to limit damage after a bubble has burst, for example by providing generous liquidity. – However, it cannot be the central bank’s task to prevent bubbles. With the instruments at its disposal, a central bank can hardly achieve monetary stability and financial stability at the same time. It is rather up to the supervisory authorities to take appropriate measures to curb a run-up in asset markets, for instance by imposing high – and, depending on various criteria, variable, and, if there are signs of a bubble, sharply increasing – collateral requirements for credit-financed transactions. – When it comes to euphoric expectations of profit and wealth, the small investors who are primarily pumping up a bubble cannot be stopped by anything or anyone: financial history has many examples to prove this. There will probably be bubbles again and again in the future. – See bubble, speculative, dotcom bubble, real estate bubble, Jackson Hole consensus, leaning against the wind, Martin principle, milkmaid bull market, quantitative easing, tulip crash, exuberance, unreasonable, full allocation.
Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent!
University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: email@example.com