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Macroeconomic Patterns and Monetary Policy in the Run-up to Asset Price Busts

Author/Editor: Kannan, Prakash | Rabanal, Pau | Scott, Alasdair
Authorized for Distribution: November 1, 2009
Electronic Access: Free Full Text (PDF file size is 1,326KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We find that inflation, output and the stance of monetary policy do not typically display unusual behavior ahead of asset price busts. By contrast, credit, shares of investment in GDP, current account deficits, and asset prices typically rise, providing useful, if not perfect, leading indicators of asset price busts. These patterns could also be observed in the build-up to the current crisis. Monetary policy was not the main, systematic cause of the current crisis. But, with inflation typically under control, central banks effectively accommodated these growing imbalances, raising the risk of damaging busts.
 
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Series: Working Paper No. 09/252
Subject(s): Asset prices | Credit expansion | Housing prices | Monetary policy | Price increases | Stock prices
Author's keyword(s): Asset Prices; Credit; Monetary Policy
 
English  
    Published:   November 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009252   Pages:   39
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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