Financial bubbles are about changes in relative prices. Temporarily, prices of internet stocks, real estate or even tulips (as the Tulipmania of 1637 proves) begin moving out of step with their fundamental value and all other prices in a market economy. The Fed is blind, because it knows nothing at all about changes in relative prices. The general price level is what keeps Fed-officials up at night, with all the consequences this might entail.

Money Is Neutral


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