Irraonal Exuberance Its Definion, Context, and the Policy Recommendaon Wrien by Widiyanto By definion irraonal exuberance is about situaon when investors too enthusiasc with the assets that price it up, but not supported by fundamentals (Kenton 2018), those investors enjoy their ability to raise more benefit in the certain profitable assets that looks like promising to gain profit in short period. They become greedy for profit that they overlook deteriorang economic fundamentals (Amadeo 2019). In other words, the investors were blind us over the truth of truly situaon, lose their raonality to invest. This phrase was popularized through a phenomenal speech delivered by Alan Greenspan, Former Chairman of the Federal Reverse Bank on 5 December 1996, moment that firstly irraonal exuberance menoned in the public discourse. From Greenspan’s view irraonal exuberance cannot separated its context to the need why monetary instuons should be independent from Congress and Presidenal administraon. Greenspan was arguing based on the historical perspecve that making monetary instuons, for instance central bank, respected over the mission, Federal Reverse could play important role to the only monetary policy. By independent in its mission, central bank could contribute in maximizing employment, sustainable economic growth and price stability (Greenspan 1996). Furthermore, Greenspan was stated: […] sustained low inflaon implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relaonship exhibited by price/earnings raos and the rate of inflaon in the past. But how do we know when irraonal exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contracons as they have in Japan over the past decade? Greenspan’s statement becomes clear to show how his willingness to steer central bank take more control on monetary policy in the US at the me to be separated from any governmental instuons. What he argued is reflecng classical economics which put individual or instuon assuming could evaluate their own acon by taking the viewpoint of an imparal spectator who, endowed with the knowledge of all the elements they know and can make such judgement without any intervenes coming from outside authority. Self-regulang market seems promising at least at the stock market. It indicates long-term achievement and stability to economics in general. Along 1990 decade, almost all of stock market in Asia as well as in the US has spectacular gain, but the US market is the biggest one to profitable. If refer to Greenspan’s speech, he himself did not recognize the possibility to happen