IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Asset Price Bubbles and Monetary Policy

Listed author(s):
  • Franklin Allen
  • Douglas Gale

Positive and negative asset price bubbles and their relationship to monetary policy are considered. Positive bubbles occur when there is an agency problem between banks and the people they lend money to because the banks cannot observe how the funds are invested. This causes a risk shifting problem and asset prices are bid up above their fundamental. The greater is uncertainty concerning monetary policy and the amount of aggregate credit the greater is the bubble. Negative bubbles can occur when there is a banking crisis that forces banks to simultaneously liquidate assets. Asset prices fall below their fundamental because of a lack of liquidity. If the central bank provides a monetary injection this negative bubble can be prevented.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 01-26.

in new window

Date of creation: May 2000
Handle: RePEc:wop:pennin:01-26
Contact details of provider: Postal:
3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367

Phone: 215.898.1279
Fax: 215.573.8757
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wop:pennin:01-26. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.