-->In general, the Fed governor commented, the central bank should not attempt to pop an asset bubble but should be ready to respond quickly after it has burst.

Mishkin argued that it is"highly dubious" that the central bank would know there was an asset bubble before the market did.
Secondly, it is not clear that the Fed would know how to prick a bubble without making it burst more severely and doing more damage, he said.


"As long as the monetary authorities watch carefully for harmful effects stemming from the bursting bubble and respond to them in a timely fashion, then the harmful effects can probably be kept to a manageable level," Mishkin said.
<ul> ~ models show that Fed rate cuts could counteract effects of house-price decline</ul>