Advanced Search
MyIDEAS: Login to save this article or follow this journal

Inflation, asset markets, and economic stabilization: lessons from Asia

Contents:

Author Info

  • Lynn Elaine Browne
  • Rebecca Hellerstein
  • Jane Sneddon Little

Abstract

In 1980's, a new convention emerged in the economics profession - that central banks' primary, even sole, responsibility should be controlling consumer price inflation. By the 1990's, this view was gaining credibility in policy circles, and various countries mandated that their central banks make inflation their primary focus (generally with and escape clause in the event of a severe economic shock). Here in the United States, this orthodoxy never gained official status; rather, the U.S. policy goal remains promoting stable long-term growth using a variety of theoretical approaches. ; The recent problems in East Asia, as well as earlier difficulties in Japan, raise the question of whether such a concentrated focus on inflation became tunnel vision. Drawing on the crises in Japan and other Asian countries, with reference to comparable episodes in the United States, this article suggests that a preoccupation with inflation may have lulled policymakers and investors into ignoring useful signals from stock, real estate, and currency markets and from emerging imbalances in the real economy. Whether such imbalances would have been better addressed by monetary policy, or by improved disclosure, supervisory intervention, or tax policy, a broader perspective might have identified problems in Asia before they assumed such crippling proportions. ; This article concludes by suggesting that policymakers may want to look for signs of overheating emanating from asset markets and from emerging imbalances in the real economy, even when consumer prices are well behaved. Signs that high levels of debt may be financing increasingly optimistic investments warrant particular concern. The article also stresses the vulnerabilities that newly liberalized financial markets may introduce and the importance of measures that encourage the private sector to price risk more accurately and force it to bear the costs of international financial crises more fully. Overall, it advocates an eclectic approach to assessing economic performance.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bostonfed.org/economic/neer/neer1998/neer598a.htm
Download Restriction: no

File URL: http://www.bostonfed.org/economic/neer/neer1998/neer598a.pdf
Download Restriction: no

Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1998)
Issue (Month): Sep ()
Pages: 3-32

as in new window
Handle: RePEc:fip:fedbne:y:1998:i:sep:p:3-32

Contact details of provider:
Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210
Phone: 617-973-3397
Fax: 617-973-4221
Email:
Web page: http://www.bos.frb.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Economic stabilization ; Monetary policy ; Asia ; Inflation (Finance) ; Financial markets;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  2. Takatoshi Ito & Tokuo Iwaisako, 1996. "Explaining Asset Bubbles in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 143-193, July.
  3. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, 04.
  4. Jane Little, 1997. "Anatomy of a currency crisis," Regional Review, Federal Reserve Bank of Boston, issue Fall, pages 8-13.
  5. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  6. Jeffrey A. Frankel, 1997. "Sterilization of money inflows: Difficult (Calvo) or Easy (Reisen)?," Estudios de Economia, University of Chile, Department of Economics, vol. 24(2 Year 19), pages 263-285, December.
  7. Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August.
  8. Rudiger Dornbusch, 1996. "How should central banks reduce inflation? conceptual issues (commentary)," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 93-103.
  9. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  10. Lynn Elaine Browne & Rebecca Hellerstein, 1997. "Are we investing too little?," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-50.
  11. Frank Smets, 1997. "Financial-asset Prices and Monetary Policy: Theory and Evidence," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
  12. Wing Thye Woo & Kenjiro Hirayama, 1996. "Monetary Autonomy in the Presence of Capital Flows: And Never the Twain Shall Meet, Except in East Asia?," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 307-333 National Bureau of Economic Research, Inc.
  13. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  14. J.A. Kregel, 1998. "East Asia Is Not Mexico: The Difference between Balance of Payments Crises and Debt Deflations," Macroeconomics 9805020, EconWPA.
  15. Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
  16. Yosuke Shigemi, 1995. "Asset Inflation in Selected Countries," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 13(2), pages 89-130, December.
  17. José Viñals & Charles Goodhart, 1994. "Strategy and Tactics of Monetary Policy: Examples from Europe and the Antipodes," FMG Special Papers sp61, Financial Markets Group.
  18. Lynn E. Browne, 1992. "Why New England went the way of Texas rather than California," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 23-41.
  19. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 97-116, Spring.
  20. Sigbjorn Atle Berg, 1993. "The banking crises in the Scandinavian countries," Proceedings 423, Federal Reserve Bank of Chicago.
  21. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  22. Takatoshi Ito & Anne O. Krueger, 1996. "Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5," NBER Books, National Bureau of Economic Research, Inc, number ito_96-1, octubre-d.
  23. Woo, W.T. & Hirayama, K., 1995. "Monetary Autonomy in the Presence of Capital Flows: And Never the Twain Shall Meet, Except in Asia?," Department of Economics 95-17, California Davis - Department of Economics.
  24. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  25. Charles Goodhart & José Viñals, 1994. "Strategy and Tactics of Monetary Policy: Examples from Europe and the Antipodes," Banco de Espa�a Working Papers 9425, Banco de Espa�a.
  26. Joe Peek & Eric S. Rosengren, 1997. "Collateral damage: effects of the Japanese real estate collapse on credit availability and real activity in the United States," Working Papers 97-5, Federal Reserve Bank of Boston.
  27. Stanley Fischer, 1996. "Why are central banks pursuing long-run price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-34.
  28. Charles Goodhart & José Viñals, 1994. "Strategy and Tactics of Monetary Policy: Examples from Europe and the Antipodes," Banco de Espa�a Working Papers 9425, Banco de Espa�a.
  29. Charles A. E. Goodhart & Jose Vinals, 1994. "Strategy an tactics of monetary policy: examples from Europe and the Antipodes," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 139-194.
  30. Archer, David J., 1997. "The New Zealand approach to rules and discretion in monetary policy," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 3-15, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Lynn Elaine Browne, 2001. "Does Japan offer any lessons for the United States?," New England Economic Review, Federal Reserve Bank of Boston, pages 3-18.
  2. Lynn Elaine Browne, 2000. "National and regional housing patterns," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 31-57.
  3. Jane Sneddon Little & Giovanni P. Olivei, 1999. "Why the interest in reforming the International Monetary System?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 53-84.
  4. Lynn Elaine Browne, 1999. "U.S economic performance: good fortune, bubble, or new era?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 3-20.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedbne:y:1998:i:sep:p:3-32. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.