On the Macroeconomics of Asset Shortages
The world has a shortage of financial assets. Asset supply is having a hard time keeping up with the global demand for store of value and collateral by households, corporations, governments, insurance companies, and financial intermediaries more broadly. The equilibrium response of asset prices and valuations to these shortages has played a central role in global economic developments over the last twenty years. The so-called "global imbalances," the recurrent emergence of speculative bubbles (which recently have transited from emerging markets, to the dot-coms, to real estate, to gold...), the historically low real interest rates and associated "interest-rate conundrum," and even the widespread low inflation environment and deflationary episodes in parts of the world, all fall into place once one adopts this asset shortage perspective.
Correspondence: firstname.lastname@example.org. These notes were prepared for the 4th ECB Central Banking Conference on "The Role of Money: Money and Monetary Policy in the Twenty-first Century," Frankfurt, November 2006. I thank George-Marios Angeletos, Olivier Blanchard, Arvind Krishnamurthy, Leonid Kogan and conference participants for their comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.