While asset price bubbles are difficult to identify, they occur "fairly frequently" and uncertainty should not dissuade policymakers from taking action to address them, New York Federal Reserve Bank President William Dudley said on Wednesday.
Determining whether a run-up in asset prices is in fact a bubble "is not easy because asset bubbles are hard to recognize in real time and each asset bubble is different," Dudley said in prepared remarks to the Economic Club of New York.
"However, these challenges cannot be an excuse for inaction," he added, noting that "recent experience strongly suggests that asset bubbles exist and their collapse can be very damaging" to financial markets and the broader economy.
Policymakers must identify proper tools to address a bubble and also be confident that the benefits of avoiding a crash will likely outweigh the risks of acting, he said.
Dudley also said monetary policy is usually too blunt a tool for deflating bubbles and urged policymakers to consider verbal warnings and regulatory or supervisory actions.
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