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

Author/Editor:

Alasdair Scott ; Pau Rabanal ; Prakash Kannan

Publication Date:

November 1, 2009

Electronic Access:

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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.

Series:

Working Paper No. 09/252

Subject:

English

Publication Date:

November 1, 2009

ISBN/ISSN:

9781451873993/1018-5941

Stock No:

WPIEA2009252

Format:

Paper

Pages:

39

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