NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Economic Models

Robert J. Shiller

NBER Working Paper No. 13558
Issued in October 2007
NBER Program(s):   AP

There has been a widespread perception in the past few years that long-term asset prices are generally high because monetary authorities have effectively kept long-term interest rates, which the market uses to discount cash flows, low. This perception is not accurate. Long-term interest rates have not been especially low. What has changed to produce high asset prices appears instead to be changes in popular economic models that people actually rely on when valuing assets. The public has mostly forgotten the concept of "real interest rate." Money illusion appears to be an important factor to consider.

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Document Object Identifier (DOI): 10.3386/w13558

Published: Robert J. Shiller, 2007. "Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Economic Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2007-2), pages 111-134.

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