Raghuram Rajan Warns of Global Economic Fragilities

The transcript discusses the current economic conditions, highlighting potential fragilities such as incipient inflation and financial sector vulnerabilities. It examines the impact of long-term accommodation on leverage and asset bubbles, particularly in bonds, and the role of central banks in managing these issues. The challenges faced by policymakers in identifying and addressing asset bubbles are also explored, emphasizing the importance of timely withdrawal of accommodation to prevent forced actions.

What is one of the potential fragilities in the economy that could lead to a recession?

• Decreasing leverage

• High employment rates

• Incipient inflation

• Stable financial markets

Why might long-term bonds be considered overvalued?

• Due to increased government spending

• Due to high inflation rates

• Because of low interest rates

• Because of quantitative easing

What is a potential consequence of withdrawing accommodation too quickly?

• Increased employment

• Stable asset prices

• Sharper price reactions

• Decreased inflation

What makes it difficult for central bankers to identify asset bubbles?

• Lack of economic data

• Uncertainty about asset transparency

• High interest rates

• Stable financial markets

What lesson can be learned from the 2001 stock market bubble compared to the subprime mortgage crisis?

• All bubbles have the same impact

• Stock market bubbles are always more dangerous

• Credit problems can have larger impacts than stock market issues

• Subprime mortgages are less risky