Asset price inflation and monetary policy.: An article from: Atlantic Economic Journal

This digital document is an article from Atlantic Economic Journal, published by Atlantic Economic Society on March 1, 2003. The length of the article is 8648 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

From the author: 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.

Citation Details
Title: Asset price inflation and monetary policy.
Author: Anna J. Schwartz
Publication:Atlantic Economic Journal (Refereed)
Date: March 1, 2003
Publisher: Atlantic Economic Society
Volume: 31 Issue: 1 Page: 1(14)

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