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Politics : Ask Michael Burke
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To: Terry D who wrote (66856)8/27/1999 10:24:00 AM
From: Terry D  Read Replies (2) of 132070
 
Time to play spot the understatement.

08/27 10:00A (DJ)+DJ Greenspan: No Explanation for "Extraordinary" Stks Rise past five years," Greenspan said.

Greenspan said that although asset prices reflect "the economic process itself," they sometimes move unpredictably. "History suggests that they also reflect waves of optimism and pessimism that can be touched by seemingly small exogenous events."
"Collapsing confidence is generally described as a bursting bubble, an event incontrovertibly evident only in retrospect," he said. "To anticipate a bubble about to burst requires the forecast of a plunge in prices previously set by the judgments of millions of investors, many of whom are highly knowledgeable about the prospects for specific companies that make up our broad stock-price indexes."
Given that uncertainty, he said, monetary policymakers need to broaden their analysis of potentially risky investment behavior. "There is an increasing need to integrate into our macro models more complete descriptions of the households and businesses to risk - behaviors that are generally modeled separately under the rubric of portfolio risk management," he said.
An individual's degree of risk aversion, he said, "may vary over time and possibly be subject to herd instincts."
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