On the Macroeconomics of Asset Shortages
Ricardo J. Caballero
Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)
November 23, 2006
MIT Department of Economics Working Paper No. 06-30
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 dotcoms, 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.
Number of Pages in PDF File: 17
Keywords: Asset shortages, high valuations, speculative bubbles, low interest rates, low inflation, monetary policy, lender of last resort
JEL Classification: E3, E4, E5 F3, F41working papers series
Date posted: December 1, 2006
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