Asset Price Bubbles and Monetary Policy: What can be learned from the Swiss Experience?

This short policy paper looks at the implications of asset price bubbles for the Swiss economy over the two last decades, and attempts at inferring policy recommendations. We argue that such bubbles are generally damaging for the overall economy. Further, concentrating our attention on bubbles that...

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Bibliographic Details
Published in:Aussenwirtschaft 2007-03, Vol.62 (1), p.9-21
Main Authors: Savioz, Marcel R, Bengui, Julien
Format: Article
Language:English
Subjects:
Assets
Balance sheets
Banking
Central banks
Consumption
Econometrics
Economic conditions
Equity
GDP
Gross Domestic Product
Housing
Housing prices
Inflation
Macroeconomics
Monetary policy
Policy making
Price level changes
Recessions
Securities markets
Statistical analysis
Stock exchanges
Studies
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Summary:This short policy paper looks at the implications of asset price bubbles for the Swiss economy over the two last decades, and attempts at inferring policy recommendations. We argue that such bubbles are generally damaging for the overall economy. Further, concentrating our attention on bubbles that are identified, we ask what kind of policy central banks should adopt in two given situations. We argue that in the case of housing price bubbles, emergency measures specifically directed at the housing market might be superior to conventional monetary policy; and that when faced with an emerging stock market bubble, an autonomous central bank of a small open economy should focus on the aftermath of the bust, taking advantage of its ability to conduct a policy tailored to the domestic needs. [PUBLICATION ABSTRACT]
ISSN:0004-8216