Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Models
AbstractThere has been a widespread perception in the past few years that long-term asset prices are generally high because monetary authorities have effectively kept long-term interest rates, which the market uses to discount cash flows, low. This perception is not accurate. Long-term interest rates have not been especially low. What has changed to produce high asset prices appears instead to be changes in popular economic models that people actually rely on when valuing assets. The public has mostly forgotten the concept of "real interest rate." Money illusion appears to be an important factor to consider.
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Date of creation: 15 Nov 2007
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- Robert J. Shiller, 2007. "Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Models," Cowles Foundation Discussion Papers 1632, Cowles Foundation for Research in Economics, Yale University.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-CBA-2007-11-24 (Central Banking)
- NEP-FMK-2007-11-24 (Financial Markets)
- NEP-MON-2007-11-24 (Monetary Economics)
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