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Stock market bubbles

In: Hidden Collective Factors in Speculative Trading

Author

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  • Bertrand M. Roehner

    (University of Paris 6, LPTHE)

Abstract

In a Reuter’s headline of 29 April 2000 one could read: “The Fed chairman is scratching his head, wondering why the volley of interest-rate increases hasn’t done the trick [i.e. cooling the speculative fever]. One reason is that the new economy has changed the waybusiness operates; companies are not as dependent on short-term debt as they used to be”. This illustrates how easily people can forget the lessons of history. Between March 1999 and May 2000 the so-called Fed funds rate(i.e the rate charged for overnight bank lending) has indeed risen from 4.75 to 6.5 percent (Fig. 8.1) that is to say by 1.75 percent. But in similar historical situations larger increases were required in order to cool speculation. In 1928 the discount rate was increased by steps from 3.75 to 5 percent without any effect on speculation; the downturn was only brought about by a further one percent increase in August 1929.

Suggested Citation

  • Bertrand M. Roehner, 2010. "Stock market bubbles," Springer Books, in: Hidden Collective Factors in Speculative Trading, chapter 0, pages 179-195, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-03048-2_8
    DOI: 10.1007/978-3-642-03048-2_8
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