This paper examines the stock and land price behaviors during the bubble economy period (the second half of the 1980s), paying considerable attention to the linkage of the two markets and the effects of monetary policy. In particular, we examine whether the booms in these asset prices can be justified by changes of the fundamental economic variables such as the interest rates or the growth of the real economy. A complex chain of events is needed to explain the process of asset price inflation and deflation. Our empirical results suggest (i) that the initial increases of asset prices are sown by a sharp increase in bank lending to real estate; (ii) that a considerable comovement between stock and land prices is consistent with a theory that emphasizes the relationship between the collateral value of land and cash flow for constrained firms; (iii) that although the real economy was doing well and the interest rates were still low, asset price increases from mid-1987 to mid-1989 cannot be fully justified by the movement of fundamentals alone; and (iv) the stock price increase in the second half of 1989 and the land price increase in 1990 is not explained by any asset pricing model based on fundamentals or rational bubbles.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5358.
Length: Date of creation: Nov 1995 Date of revision: Handle: RePEc:nbr:nberwo:5358
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Find related papers by JEL classification: E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates G1 - Financial Economics - - General Financial Markets
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.:
John Moore & Nobuhiro Kiyotaki, .
"Credit Cycles,"
Discussion Papers
1995-5, Edinburgh School of Economics, University of Edinburgh.
Other versions:
Nobuhiro Kiyotaki & John Moore, 1995.
"Credit Cycles,"
NBER Working Papers
5083, National Bureau of Economic Research, Inc.
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Cited by: (explanations, 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.)
Takatoshi Ito, 2000.
"Capital Flows in Asia,"
NBER Chapters,
in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 255-298
National Bureau of Economic Research, Inc.
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