Galí (2014) showed that a monetary policy rule that raises interest rates in response to bubbles can paradoxically lead … to larger bubbles. This comment shows that a central bank that wants to dampen bubbles can always do so by raising … argue Galí's model contains additional equilibria in which more aggressive rules dampen bubbles. We show that for these …

We present an estimated dynamic stochastic general equilibrium model of stock market bubbles and business cycles using … Bayesian methods. Bubbles emerge through a positive feedback loop mechanism supported by self-fulfilling beliefs. We identify a … sentiment shock that drives the movements of bubbles and is transmitted to the real economy through endogenous credit …