Investors are likely to be sensitive to the need for asset prices to be backed ultimately by an ongoing stream of earnings. Hence, a further necessary condition for the emergence of a bubble is the passage of sufficient time to erode the traumatic memories of earlier post-bubble experiences.
*  *  *  Most standard macroeconomic models fitted to the experience of recent decades imply that a distortion in valuation ratios induced by a bubble can be offset by adopting a sufficiently restrictive monetary policy. According to such models, a tighter monetary policy, on average, credibly constrains demand and lowers asset prices, all else being equal.