No model in the world can prevent a financial bubble if monetary policy is too lax, or a recession if it is too tight.
Analyses using traditional models have tended to blame the bubble on overly loose monetary policy from the Fed.
And the Bank of Japan did not ease policy enough once the bubble had burst.
Third, central banks must know the right monetary policy to deflate a bubble.
President Bush exacerbated the problem, further pumping up the housing bubble with his cheap dollar monetary policy, under the illogical, outdated, Keynesian thinking that a cheap dollar expands the economy by promoting exports.
Federal Reserve monetary policy errors caused the housing bubble and precipitated the housing bust.
By then that prolonged easy money policy had the real estate bubble forming.
The Fed inadvertently triggered the bubble in oil prices through its inflationary monetary policy.
But the Bank will be loth to repeat the mistake of the late 1980s, when too lax a monetary policy inflated a property-price bubble.
In recent years, Mr Greenspan has been taking a big risk by not having tightened policy when he first thought a bubble might be forming, or subsequently.
For several years, Stack has been critical of Fed policy that he says created the equity bubble and the disastrous aftermath.
His current policy is to inflate another stock market bubble to cure the recession that resulted from the bursting of the housing bubble, which was itself inflated to counter the effects of the bursting tech stock bubble.
The minimal interest rate, cheap dollar monetary policy of the Fed pumped up the housing bubble.
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The macro economic condition that set up the crisis stemmed in part from policy choices: the Federal Reserve ignored the housing bubble and kept short-term interest rates too low for too long.
Loose monetary policy makes him nervous about the possibility of a property bubble in Germany.
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Lax monetary policy allowed Americans to build up debts and fuelled a housing bubble that had to burst eventually.
Second, monetary policy must be unable to deal with the consequences of a burst bubble.
The astonishing housing bubble could not have happened without the Federal Reserve's easy-money policy, which got under way in late 2003.
In other words, a historically low stock market in an adverse economic policy environment temporarily propped up by easy money can still be a bubble.
Although an expansive monetary policy and the massive inflow of cheap money helped inflate the housing bubble, the financial crisis as we know it would not have occurred without the toxic effect of subprime lending.
The Bank of Japan allowed deflation to develop when it held policy too tight, partly because it was worried about another asset-price bubble.
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They then run policy experiments on the model, asking what policymakers might have done to prevent the bubble forming, or at least stopped it building once it was clear there was one.
The second and no doubt leading contributor to the gold bubble has been the world financial crisis of 2008-2009 and the subsequent worldwide central bank policy of monetary expansion to fight financial asset price deflation.
Commentators have marveled at his mischaracterization of the gold standard and his defensiveness at the suggestion that loose Fed monetary policy of the early and mid-2000s played a role in causing the housing bubble and thus the Great Recession.
The housing bubble never would have reached such obese proportions had it not been for Greenspan's weak-dollar policy.
But from a policy view, no one was able to say, "Let's stop the bubble before it bursts', " he said.
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