TY  - JOUR
AU  - Cecchetti, Stephen G
TI  - Measuring the Macroeconomic Risks Posed by Asset Price Booms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12542
PY  - 2006
Y2  - September 2006
DO  - 10.3386/w12542
UR  - http://www.nber.org/papers/w12542
L1  - http://www.nber.org/papers/w12542.pdf
N1  - Author contact info:
Stephen G. Cecchetti
Brandeis University
International Business School
415 South Street
Waltham MA 02453
Tel: 781/736-4856
Fax: 781/736-2269
E-Mail: cecchetti@brandeis.edu
M1  - published as Stephen G. Cecchetti. "Measuring the Macroeconomic Risks Posed by Asset Price Booms," in John Y. Campbell, editor, "Asset Prices and Monetary Policy" University of Chicago Press (2008)

AB  - Modern central bankers are the risk managers of the financial system.  They take actions based not only on point forecasts for growth and inflation, but based on the entire distribution of possible macroeconomic outcomes.  In numerous instances monetary policymakers have acted in ways designed to avert disasters.  What are the implications of this approach for managin the risks posed by asset price booms?  To address this question, I study data from a cross-section of countries to examine the impact of equity and property booms on the entire distribution of deviation in output and price-level from their trends.  The results suggest that housing booms worsen growth prospects, creating outsized risks of very bad outcomes.  By contrast, equity booms have very little impact on the expected mean and variance of macroeconomic performance, but worsen the worst outcomes.
ER  -