by From Lars Syll The efficient market hypothesis — EMH — argues there is no free lunch and prices are ‘right.’ Well, as we all know, that is not true. Noise does influence asset prices and the law of one price is blatantly violated again and again. Of course, THERE ARE IDIOTS, as Larry Summers once (in)famously put it. When visiting Chicago, look around … The price is often wrong, and sometimes very wrong … If policy-makers simply take it as a matter of faith that prices are always right, they will never see any need to take preventive action. But once we grant that bubbles are possible, and the private sector appears to be feeding the frenzy, it can make sense for policy-makers to lean against the wind in some way. Central banks around the world have had to take extraordinary measures
Topics:
Lars Pålsson Syll considers the following as important: Uncategorized
This could be interesting, too:
Merijn T. Knibbe writes ´Fryslan boppe´. An in-depth inspirational analysis of work rewarded with the 2024 Riksbank prize in economic sciences.
Peter Radford writes AJR, Nobel, and prompt engineering
Lars Pålsson Syll writes Central bank independence — a convenient illusion
Eric Kramer writes What if Trump wins?
from Lars Syll
The efficient market hypothesis — EMH — argues there is no free lunch and prices are ‘right.’ Well, as we all know, that is not true. 
Noise does influence asset prices and the law of one price is blatantly violated again and again.
Of course, THERE ARE IDIOTS, as Larry Summers once (in)famously put it. When visiting Chicago, look around …
The price is often wrong, and sometimes very wrong … If policy-makers simply take it as a matter of faith that prices are always right, they will never see any need to take preventive action. But once we grant that bubbles are possible, and the private sector appears to be feeding the frenzy, it can make sense for policy-makers to lean against the wind in some way.
Central banks around the world have had to take extraordinary measures to help economies recover from the financial crisis. The same people who complain most about these extraordinary measures are also those who would object to relatively minor steps to reduce the likelihood of another catastrophe. That is simply irrational.