by Calculated Risk on 11/09/2009 09:24:00 PM

Former Fed Governor Frederic Mishkin writes in the Financial Times: Not all bubbles present a risk to the economy

There is increasing concern that we may be experiencing another round of asset-price bubbles that could pose great danger to the economy. Does this danger provide a case for the US Federal Reserve to exit from its zero-interest-rate policy sooner rather than later, as many commentators have suggested? The answer is no.
excerpted with permission

Mishkin outlines two different types of bubbles, and argues a "credit boom bubble" poses a risk to the economy, but a "pure irrational exuberance bubble" does not.

For more excerpts, see EconomistView: "Not All Bubbles Present a Risk to the Economy"