There 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13558.
Length: Date of creation: Oct 2007 Date of revision: Handle: RePEc:nbr:nberwo:13558
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Joseph Gyourko & Christopher Mayer & Todd Sinai, 2006.
"Superstar Cities,"
NBER Working Papers
12355, National Bureau of Economic Research, Inc.
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