Interaction of the Expansionary Monetary Policy and the Financial Bubbles

Abstract

Although the expansionary monetary policy stance in the years following the crisis has greatly contributed to economic recovery, it is also important to take into consideration the unintended side effects. Although the level of inflation has remained subdued throughout, the huge amount of money spent on the economy has not disappeared without trace. It is important to pay attention on the consequences of the further deepening of existing inequalities, the risk of financial instability and the formation of bubbles caused by asset price increases in the markets of different instruments. The aim of the research is to take into account the risks associated with the above topic, in particular the risks of asset price bubbles and the possible responses and challenges which may affect the area of monetary policy. The study also details the theoretical context of fi nancial bubbles and the risks of quantitative easing to fi nancial instability and bubble formation.