asset price bubbles in the economy. To curb such risk-taking incentives at banks and the resulting asset bubbles, Central …

This paper develops a model to study the impact of central bank policies on financial assets' bubbles. In particular … inflate bubbles since they allow for (i) maximum capital gains in case of no burst and (ii) losses being absorbed by central … bank's intervention which occurs only when sufficiently large bubbles burst. Our model predicts that bubbles should be …

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 …

policy implementation and its resultant effects raises doubts as to the viability of such an intervention to tackle bubbles … that bubbles evolve in few sectors of the economy. The 90's dot com and recent real estate bubble require focused …