Asset price bubbles and Central Bank Policy
Rolf Englund IntCom internetional
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The really interesting question
I think the really interesting question to be asked to which extent central banks have contributed to, or even caused, this crisis.
Now I do believe that the long period of negative real interest rates in the first half of this decade had a profound effect on credit growth - in a way that seems perfectly logical. If real interest rates are negative, it becomes rational for agents to borrow as much as they can get their hands on. So we should not fake surprise at the thought that a negative real interest rate produces an unsustainable credit boom. Yes, there are technical factors within the markets that have turned this boom into quite such a toxic event, but this can hardly explain why this crisis broke out at the time when it did.