Macroeconomic Patterns and Monetary Policy in the Run-Up to Asset Price Busts

40 Pages Posted: 24 Nov 2009

See all articles by Prakash Kannan

Prakash Kannan

International Monetary Fund (IMF)

Pau Rabanal

International Monetary Fund

Alasdair M. Scott

International Monetary Fund (IMF)

Date Written: November 2009

Abstract

We find that inflation, output and the stance of monetary policy do not typically display unusual behavior ahead of asset price busts. By contrast, credit, shares of investment in GDP, current account deficits, and asset prices typically rise, providing useful, if not perfect, leading indicators of asset price busts. These patterns could also be observed in the build-up to the current crisis. Monetary policy was not the main, systematic cause of the current crisis. But, with inflation typically under control, central banks effectively accommodated these growing imbalances, raising the risk of damaging busts.

Keywords: Asset prices, Credit expansion, Housing prices, Monetary policy, Price increases, Stock prices

Suggested Citation

Kannan, Prakash and Rabanal, Pau and Scott, Alasdair M., Macroeconomic Patterns and Monetary Policy in the Run-Up to Asset Price Busts (November 2009). IMF Working Papers, Vol. , pp. 1-39, 2009. Available at SSRN: https://ssrn.com/abstract=1512257

Prakash Kannan

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
(202)623-8806 (Phone)

Pau Rabanal

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

Alasdair M. Scott

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
132
Abstract Views
749
rank
220,259
PlumX Metrics