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Asset price fluctuation and price indices


  • Shigenori Shiratsuka


Since the late 1980s, the Japanese has experienced tremendous rise and fall of asset prices and large fluctuations of real economic activity, while general price level has remained relatively stable. Such developments raised a question of whether monetary policy should have targeted asset prices rather than conventional price indices. This paper focuses on how to make use of information inherent with asset price fluctuations in the monetary policy judgement. To this end, it investigates the possibility of incorporating asset price data into inflation measures by extending the conventional price index into a dynamic framework. The main conclusion of this paper is as follows. Although the concept of such extensions of the conventional price index is highly evaluated from theoretical viewpoints, it is difficult for monetary policy makers to expect it to be more than a supplementary indicator for monetary policy judgment. This is because (1) reliability of asset price statistics is quite low, compared with the conventional price indices; and (2) asset price changes do not necessarily mean that the future price changes because there are a lot of sources for asset price fluctuation besides the private-sector expectation for inflation.

Suggested Citation

  • Shigenori Shiratsuka, 1999. "Asset price fluctuation and price indices," Working Paper Series WP-99-9, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-99-9

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    References listed on IDEAS

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    Cited by:

    1. M.F. Bryan & S.G. Cecchetti & R. O'Sullivan, 2001. "Asset Prices in the Measurement of Inflation," DNB Staff Reports (discontinued) 62, Netherlands Central Bank.
    2. Imran Hussain Shah & Simón Sosvilla-Rivero, 2017. "Seeking price and macroeconomic stabilisation in the euro area: The role of house prices and stock prices," IREA Working Papers 201710, University of Barcelona, Research Institute of Applied Economics, revised May 2017.
    3. Imran Hussain Shah & Ahmad Hassan Ahmad, 2017. "How important is the financial sector to price indices in an inflation targeting regime? An empirical analysis of the UK and the US," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1063-1082, May.
    4. Eric Tymoigne, 2006. "Asset Prices, Financial Fragility, and Central Banking," Economics Working Paper Archive wp_456, Levy Economics Institute.
    5. Grégory Levieuge, 2005. "Politique monétaire et prix d'actifs," Revue de l'OFCE, Presses de Sciences-Po, vol. 93(2), pages 317-355.
    6. Myftari, Entela & Rossi, Sergio, 2010. "Prix des actifs et politique monétaire : enjeux et perspectives après la crise financière de 2007-2009," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(3), pages 355-383, septembre.
    7. Andrew Filardo, 2004. "Monetary policy and asset price bubbles: calibrating the monetary policy trade-offs," BIS Working Papers 155, Bank for International Settlements.
    8. Cristi Spulbar & Adriana Spinu & Mihai Nitoi, 2012. "Financial Stability And Price Stability: An Empirical Analysis In Euro Area," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 220-229, December.
    9. Adam Posen, 2003. "It Takes More Than a Bubble to Become Japan," RBA Annual Conference Volume,in: Anthony Richards & Tim Robinson (ed.), Asset Prices and Monetary Policy Reserve Bank of Australia.
    10. Aoki, Shuhei & Kitahara, Minoru, 2008. "Measuring the Dynamic Cost of Living Index from Consumption Data," MPRA Paper 9802, University Library of Munich, Germany.
    11. Kazumasa Iwata, 2007. "Housing and monetary policy in Japan," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 445-461.
    12. Róisín O’Sullivan, 2005. "House Prices in the Measurement of Inflation - An Application Using Irish Data," The Economic and Social Review, Economic and Social Studies, vol. 36(2), pages 157-178.
    13. Weida Kuang & Peng Liu, 2015. "Inflation and House Prices: Theory and Evidence from 35 Major Cities in China," International Real Estate Review, Asian Real Estate Society, vol. 18(2), pages 217-240.
    14. Goodhart, Charles & Hofmann, Boris, 2000. "Financial Variables and the Conduct of Monetary Policy," Working Paper Series 112, Sveriges Riksbank (Central Bank of Sweden).

    More about this item


    Monetary policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy


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