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Stock Exchanges
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  • Course
  • Basic Finance
  • Institution
  • The Open University (OU)

Stock exchanges are vital financial markets that facilitate the buying and selling of stocks, bonds, and other securities. A recognised stock exchange provides an organised market where securities can be easily traded with transparency and efficiency. In this essay, we will visit the website of the...

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Document information

  • April 22, 2023
  • 3
  • 2021/2022
  • Essay
  • Unknown
  • Unknown

Subjects

  • writing assessment unit 2
  • principles of finance
  • stock exchange

Written for

  • The Open University (OU)
  • Unknown
  • Basic Finance
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Principles of Finance
Writing Assessment Unit 2
19/04/2023


The authors of the working paper "Monetary Policy and the Housing Bubble" argue

that the low-interest rates set by the US Federal Reserve in the early 2000s contributed to

the housing market bubble (Federal Reserve Board, 2009). According to the authors, the

low-interest rates stimulated demand for housing and led to an increase in housing prices.

They point out that "the availability of cheap and available credit stimulated housing de-

mand, leading to higher housing prices" (p. 3).


The authors also discuss the role of loose monetary policy in contributing to the

housing market bubble (Federal Reserve Board, 2009). They argue that the Federal Reserve

kept interest rates too low for too long. It is noted that "the Federal Reserve's interest rate

policy during the housing boom can be characterised as too loose relative to the Taylor

Rule" (p. 4).


The Taylor Rule is a well-known formula for setting interest rates based on inflation

and output gaps (Federal Reserve Board, 2009). The authors use the Taylor Rule as a bench-

mark for evaluating the Federal Reserve's interest rate policy during the housing market

bubble. They argue that the Federal Reserve should have raised interest rates earlier and

more aggressively to prevent the housing market bubble from forming.


The authors go on to evaluate the effectiveness of monetary policy in achieving its goals

(Federal Reserve Board, 2009). They argue that "the goal of monetary policy should be to

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