NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Asset Price Inflation and Monetary Policy

Anna J. Schwartz

NBER Working Paper No. 9321
Issued in November 2002
NBER Program(s):   ME

It is crucial that central banks and regulatory authorities be aware of effects of asset price inflation on the stability of the financial system. Lending activity based on asset collateral during the boom is hazardous to the health of lenders when the boom collapses. One way that authorities can curb the distortion of lenders' portfolios during asset price booms is to have in place capital requirements that increase with the growth of credit extensions collateralized by assets whose prices have escalated. If financial institutions avoid this pitfall, their soundness will not be impaired when assets backing loans fall in value. Rather than trying to gauge the effects of asset prices on core inflation, central banks may be better advised to be alert to the weakening of financial balance sheets in the aftermath of a fall in value of asset collateral backing loans.

download in pdf format
   (244 K)

email paper

This paper is available as PDF (244 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9321

Published: Schwartz, Anna J. " Asset Price Inflation and Monetary Policy." Atlantic Economic Journal 31, 1 (March 2003) 1-14. citation courtesy of

Users who downloaded this paper also downloaded these:
Bordo and Jeanne w8966 Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy
Mishkin w8617 The Transmission Mechanism and the Role of Asset Prices in Monetary Policy
Bryan, Cecchetti, and O'Sullivan w8700 Asset Prices in the Measurement of Inflation
Cecchetti, Genberg, and Wadhwani w8970 Asset Prices in a Flexible Inflation Targeting Framework
Bernanke and Gertler w7559 Monetary Policy and Asset Price Volatility
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us