Understanding Asset Prices: Determinants and Policy Implications

44 Pages Posted: 21 Oct 2010

Date Written: May 2007

Abstract

The paper provides an overview of recent asset price developments in France in the light of analytical research carried out at the Banque de France. Like in many other countries, historically low interest rates have boosted asset price dynamics in France over recent years. The paper attempts to shed light on the main driving factors and assesses, in particular, the role played by "excess liquidity" in shaping current developments. Additional factors related to fierce competition in the French banking sector have also contributed to the upswing in residential property prices, exacerbating households' demand through credit expansion and leading to a sharp and unprecedented increase in household debt, consistent with a financial-accelerator-like mechanism. On several occasions over the past two years, the Banque de France has expressed its concerns about lending for housing purchase and housing price developments, both from a monetary and a financial stability perspective. Finally, the paper presents some views, based on in-house research, on the role, if any, that asset prices could play in the setting of monetary policy.

Keywords: Asset prices, monetary policy

JEL Classification: E44, E50, G12

Suggested Citation

Clerc, Laurent, Understanding Asset Prices: Determinants and Policy Implications (May 2007). Banque de France Working Paper No. 168, Available at SSRN: https://ssrn.com/abstract=1694510 or http://dx.doi.org/10.2139/ssrn.1694510

Laurent Clerc (Contact Author)

Banque de France ( email )

Paris
France

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