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 …

bubbles. For this we posit an overlapping generation model where productivity and credit supply are subject to random shocks …. We find that when real interest rates are lower than the rate of growth, credit financed bubbles may be welfare improving …

’ heterogeneity and rational bubbles, and their normative implications for monetary policy. Heterogeneity stems from idiosyncratic … uncertainty related to participation in the asset and labor markets, and allows bubbles to emerge in equilibrium despite the fact …-policy response to bubbles, however, depends on the features of the latter …