Should Central Banks Deflate Asset Bubbles? Clean vs Lean, Svensson's Cost-Benefit Test and Macro...

Core consumer price inflation is sitting dead on target at two point zero percent, manufacturing output is softening, and yet metropolitan house prices and leveraged commercial property valuations are climbing at fourteen percent a year. Should the central bank hike interest rates above what inflation targeting requires in order to deflate the asset boom before it turns into a banking crisis? We build the theory and evidence of monetary policy and asset bubbles from first principles: the Bernanke-Gertler vs BIS Jackson Hole debate, Svensson's quadratic loss cost-benefit math, Galí's rational bubble growth condition, Adrian and Shin's intermediary leverage channel, Tinbergen separation, and the sobering historical record of central banks that tried to prick bubbles with the short rate. Full episode title: Should Central Banks Tighten Monetary Policy to Deflate Asset Price Bubbles? Bernanke-Gertler Clean vs White-Borio Lean, Svensson's Cost-Benefit Test, Galí's Rational Bubble Paradox, and Macroprudential Tinbergen Separation Chapters 00:00:00 Cold Open: Seventy-Two Hours Before the Rate Decision 00:05:10 First Principles: Fundamental Value, Rational Bubbles, and the Identification Trap 00:10:49 The Jackson Hole Consensus: Bernanke, Gertler, and the "Clean Up Afterwards" Doctrine 00:15:45 The BIS Counter-Revolution: White, Borio, the Financial Cycle, and "Gets in All the Cracks" 00:20:21 Jordi Galí's 2014 Rational Bubble Paradox: Why Raising Rates Can Make a Bubble Grow Faster 00:25:02 Lars Svensson's Cost-Benefit Test: The Hidden Second Cost of Leaning Against the Wind 00:30:02 The Risk-Taking Channel and Intermediary Leverage: Adrian, Shin, and Collective Moral Hazard 00:34:35 Tinbergen's Separation Principle and the Macroprudential Arsenal 00:41:56 Worked Example by Ear: Running Svensson's Cost-Benefit Test and Galí's Bubble Decomposition 00:47:33 Historical Postmortem I: The Federal Reserve in 1928–1929 and the Bank of Japan in 1989–1990 00:51:55 Historical Postmortem II: The Riksbank's 2010–2011 Hike and the 2003–2006 US Housing Boom 00:56:13 When Does the Verdict Flip? Credit vs Equity Bubbles and Emerging Market FX Debt 01:02:19 What People Get Wrong: Six Myths About Interest Rates and Asset Bubbles 01:08:13 Closing: The Verdict in Stockholm and the Bridge to Sovereign Bond Markets Created by Sankalp Thakur. A Transient Labs production. Website: https://transientlabs.ai GitHub: https://github.com/sankalpsthakur X / Twitter: https://x.com/sankalpsthakur LinkedIn:   / sankalpthakur   Hugging Face: https://huggingface.co/sankalpsthakur Scripts generated with Claude Opus. Synthetic narration generated with Kokoro. Reviewed, listened to, and approved by Sankalp Thakur.