However, the magnitude of the economic downturn, the loss of jobs, and the declining pace of economic recovery in the major economies, highlight that the cost of allowing bubbles to develop is so large that the “clean-up” strategy by itself is insufficient. Actions to prevent the accumulation of financial imbalances are also necessary. Now let me look at this issue from the “leaning” side.
The question would be, “what is the relationship between low interest rates or long periods of accommodative monetary policy and the emergence of bubbles?” Here it is important to keep in mind the behavior of market participants as Professor Rajan has argued previously. 2 Institutional investors, in many cases, develop their investment strategies targeting a nominal rate of return, taking into consideration past experience.