We explore the implications of shocks to expected future productivity in a setting with limited enforcement of financial contracts. As in Lorenzoni andWalentin (2007) optimal financial contracts under limited enforcement imply that to obtain external finance firms have to post collateral in...

The sharp increase in equity prices over the 1990s was widely attributed to permanently higher productivity growth derived from the New Economy. This paper establishes a rational expectations model of technology innovations and equity prices, which shows that under plausible assumptions,...

This paper develops a theory of medium term share price movements under slow adjustment in the labour market relative to the share market and perfect foresight in the share market. The model seeks to explain the slow movements in real share prices that have been observed in the OECD countries...

In the aftermath of the financial crisis, it has been argued that a guideline for future policy should be to take the 'a' out of 'asymmetry' in the way monetary policy deals with asset price movements. Recent empirical evidence has suggested that the Federal Reserve may have followed an...

Yes. Existing studies of the possible role of asset prices in monetary policy implicitly assume that central banks respond to asset price movements in a fully symmetric way. This paper offers a new perspective by allowing for different policy reactions to stock price increases and decreases,...

We examine large price changes, known as jumps, in the U.S. Treasury market. Using recently developed statistical tools, we identify price jumps in the 2-, 3-, 5-, 10-year notes and 30-year bond during the period of 2005-2006. Our results show that jumps mostly occur during prescheduled...

Historical narratives typically associate financial crises with credit expansions and asset price misalignments. The question is whether some combination of measures of credit and asset prices can be used to predict these events. Borio and Lowe (2002) answer this question in the affirmative for...

A bursting asset bubble inevitably requires central bank action, usually when it is already too late and with adverse spillover effects. In this sense, the Federal Reserve and other central banks already target asset prices; yet, by taking aim at them only on the way down - as in the current...

In an asset and debt deflation, the process of reducing debt by saving and curtailing spending takes a long time, say authors Philip Arestis and Elias Karakitsos. Current imbalances and poor prospects for spending in the private sector affect the balance sheets of the commercial banks. The...

This paper proposes new metrics for the process of price discovery on the main electronic trading platform for euro-denominated government securities. Analysing price data on daily transactions for 107 bonds over a period of twenty-seven months, we find a greater degree of price leadership of...