Related Article

Dudley, William C., "Asset Bubbles and the Implications for Central Bank Policy": http://www.newyorkfed.org/newsevents/speeches/2010/dud100407.html. In this speech, Dudley explains the menu of options available for central banks when faced with a potential asset-price bubble.

Discussion Question

Describe the consequences of a central bank-engineered increase in interest rates to avoid an asset-price bubble if it turns out that the asset-price bubble did not exist (i.e., the increase in the asset price could be explained by market fundamentals). In the present-context, consider the current housing market in the United States.