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Macroeconomic Patterns and Monetary Policy in the Run-up to Asset Price Busts

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  • Mr. Alasdair Scott
  • Mr. Pau Rabanal
  • Mr. Prakash Kannan

Abstract

We find that inflation, output and the stance of monetary policy do not typically display unusual behavior ahead of asset price busts. By contrast, credit, shares of investment in GDP, current account deficits, and asset prices typically rise, providing useful, if not perfect, leading indicators of asset price busts. These patterns could also be observed in the build-up to the current crisis. Monetary policy was not the main, systematic cause of the current crisis. But, with inflation typically under control, central banks effectively accommodated these growing imbalances, raising the risk of damaging busts.

Suggested Citation

  • Mr. Alasdair Scott & Mr. Pau Rabanal & Mr. Prakash Kannan, 2009. "Macroeconomic Patterns and Monetary Policy in the Run-up to Asset Price Busts," IMF Working Papers 2009/252, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/252
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    4. Paul De Grauwe, 2014. "The Governance of a Fragile Eurozone," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 12, pages 297-320, World Scientific Publishing Co. Pte. Ltd..
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    6. Agur, I. & Demertzis, M., 2010. "Monetary Policy and Excessive Bank Risk Taking," Other publications TiSEM ed82a0e9-77c4-469a-95dc-b, Tilburg University, School of Economics and Management.
    7. Agur, I. & Demertzis, M., 2010. "Monetary Policy and Excessive Bank Risk Taking," Other publications TiSEM ed82a0e9-77c4-469a-95dc-b, Tilburg University, School of Economics and Management.
    8. D. Filiz Unsal, 2013. "Capital Flows and Financial Stability: Monetary Policy and Macroprudential Responses," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 233-285, March.
    9. Indrani Manna, 2018. "Can We Still Lean Against the Wind?," Open Economies Review, Springer, vol. 29(2), pages 223-259, April.
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