Can you actually stop a bubble from forming or busting? Are there any documented examples?
That said, the psychology of bubbles is difficult to stop once it gains momentum.
The problem is that an entity like the fed doesn't have better information than the markets about appropriate asset pricing, so attempts to dampen bubbles might turn out to be premature or ill advised.
That's my $.02, I'm not a trained economist, just an armchair observer.
Economics PhD applicants score almost as high in the quantitative component of the GRE as their counterparts in mathematics and physics. That's because math and statistics are crucial to modern economics.
That's why there's a whole field of statistics named after economics: http://en.wikipedia.org/wiki/Econometrics
Take minimum wage for example. This is a theory with supporters in both camps - some for, some against. Well, how can we ever measure if a minimum wage is having a positive influence? How can we continue in support of a theory with no supporting evidence? Pile on 500 more concurrent theories, and you have a cluster-fuck only Krugman could defend.
There's an increased focus on affecting the medium-term or longer-term interest rates through the purchase of toxic assets like mortgage backed securities.
Not sure if that answers or clarifies anything though. I can say more if you're interested.
Monetarists believe in controlling the money supply rather than interest rate. Is that what you're looking for?
The growth of the bubble makes many people rich and therefore, creates even more mass media / hype about the 'bubble'.
This final stage makes everyone who is outside the bubble, wish they could get in on the 'action' of the bubble. People invest at any price, valuations continue to rise way past a realistic point and the whole thing is destined for failure.
When the first cracks emerge and the price proves to not support the reality of investment the whole things begins to tumble down.
I personally don't blame the people in the bubble initially for the collapse, but rather the media for driving the bubble's growth outside of the bubble's expertise.