Understanding Asset Prices: Determinants and Policy Implications
AbstractThe 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.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 168.
Length: 32 pages
Date of creation: 2007
Date of revision:
Asset prices ; Monetary policy.;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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