TY  - JOUR
AU  - Schwartz,Anna J.
TI  - Asset Price Inflation and Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9321
PY  - 2002
Y2  - November 2002
UR  - http://www.nber.org/papers/w9321
L1  - http://www.nber.org/papers/w9321.pdf
N1  - Author contact info:
Anna J. Schwartz
NBER
365 Fifth Ave, 5th Floor
New York, NY  10016
Tel: 212/817-7957
Fax: 212/817-1597
E-Mail: aschwartz@gc.cuny.edu
AB  - 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.
ER  -