If Greenspan had raised interest rates higher, instead of keeping them low for so long - would have helped?

Grudun answered one year ago …

Definately some. If borrowing money to buy a house had been more expensive fewer people would have bought homes that they could afford then but not later because they would not have been able to afford homes. This would have slowed the appreciation in homes creating a lower peak and therefore a smaller drop. Also the higher interest rates would have increased savings which provide a small stop gap for when the economy goes bad, and kept savings from loosing ground to inflation which further depressed savings. The biggest problem is the fed has only one tool and it is normally not the most effective for the job that it has been given so it ends up over using it. Also the fed seems to react to political considerations as much as bussiness ones creating a lot of late overreactions that out live their usefullness(ie. The drop in rates after 9/11 was a helpful action but it should have come with a time limit instead of continuing to keep interest rates too low)