Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I think you'd find it hard to find an Irish economist who doesn't believe that the exceptionally low ECB interest rates at a time of 8-10% "growth" in the Irish economy didn't contribute to the asset price bubble.

There is no mechanism for low interest rates to create bubbles.

There is no mechanism for high interest rates to kill bubbles, except by flatlining the productive economy so hard that pessimism causes people to reexamine prospectuses that now seem too good to be true (actually they should have seemed like that all the time, but nothing focuses your mind on little things like the soundness of a business model like the imminent threat of bankruptcy). I file that under the heading of "cures that are worse than the disease."

Killing bubbles is the financial regulator's job. Killing unsustainable growth rates is fiscal policy's job.

I think that there are compelling reasons to give the central bank the financial regulator's job. But that requires giving the CB the financial regulator's tools as well, and that's not the institutional setup we have right now. And it's especially not the sort of central banks we have right now. Major housecleaning would be necessary before they could fill those shoes.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Sep 12th, 2011 at 04:11:03 PM EST
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