French research says monetary policy can offset herding
A working paper, published by the Banque de France on December 13, finds that although central banks have less access to private information than investors, monetary policy interventions to deflate asset bubbles can still improve welfare.
The paper's authors, Olivier Loisel, Aude Pommeret and Franck Portier, develop a model that shows monetary policy can eliminate bubbles by adjusting the interest rate. While there is a risk that central bankers may incorrectly identify a bubble due to the
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