[PEN-L:29979] Re: RE: Greenspan at Jackson Hole

["Ian Murray" <seamus2001@xxxxxxxxx>]

RE: [PEN-L:29976] Greenspan at Jackson Hole
----- Original Message -----
From: Devine, James



does he explain why he couldn't fight the stock market bubble using margin requirements or
his own words, so that he didn't need to raise interest rates?

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Down in the footnotes:

...the preponderance of research suggests that changes in margins are not an effective
tool for reducing stock market volatility. It is possible that margin requirements inhibit
very small investors whose access to other forms of credit is limited. If so, the only
effect of raised margin requirements is to price out the very small investor without
addressing the broader issue of stock price bubbles.

If a change in margin requirements were taken by investors as a signal that the central
bank would soon tighten monetary policy enough to burst a bubble, then there might be the
appearance of a causal effect. But it is the prospect of monetary policy action, not the
margin increase, that should be viewed as the trigger. In a similar manner, history tells
us that "jawboning" asset markets will be ineffective unless backed by action.