Asset Price Booms and Macroeconomic Policy: A Risk-Shifting Approach

This paper uses a risk-shifting model to analyze policy responses asset price booms. We show risk shifting leads inefficient and credit booms in which prices can exceed fundamentals. However, the inefficiencies associated with arise independently of whether is bubble. Given evidence shifting, policymakers may not need determine if assets are bubbles justify intervention. then that some main candidate interventions against have ambiguous welfare implications: tighter monetary mitigate but at cost, while leverage restrictions raise lead more leveraged speculation rather than less. Policy effective when they disproportionately discourage riskier investments. (JEL D82, E23, E32, E44, E52, G01, G12)