However, it was discussed back then that the problem could be solved with Pigouvian tax; lending growth could be subject to a tax to be paid by banks. In March 1989, a new system of additional reserve requirements was introduced. The requirement was conditional on the lending growth rate of each bank. No interest was paid on these extra central bank reserves.
In this case, we end up with a “rational bubble”, which – as you will have noticed – follows the dynamics prominently highlighted by Jean Tirole 12. While unconventional monetary policy is not a necessary condition for this type of bubble to emerge, it may render it more likely – and more violent in the event of its materialising.