ABSTRACT
As the US economy and stock markets broke new records in the 1990s, there was a curiosity-among policy-makers and economists-as to how to explain this boom within the confines of conventional wisdom. We have already canvassed some of the causes of the stock market bubble. We also examined the origins of the productivity surge in Chapter 5 and we now turn to the role of the Fed steering the economy through these unchartered waters. The irony or dichotomy to be explained is that the financial economy boomed with asset price inflation as its by-product, while the real economy surged and yet goods price inflation was not a by-product. Handling this twin rail dichotomous economy was not an easy task for the Fed.
