As the number of banks increases, growth in assets is expected to follow.
Just as with product prices, rapid increases in asset prices can distort the allocation of resources.
The Fed has finally succeeded in getting growth going, but it most likely has only managed this by creating dangerous and unsustainable increases in asset prices.
And rightly so: real interest rates are already negative and the bank has raised the alarm about the recent rapid pace of growth in credit which could lead to unsustainable increases in asset prices, particularly in house prices.
That will have to change.A third lesson is that central banks should sometimes tighten monetary policy in response to sharp increases in asset prices even if inflation is low.
Furthermorewhile aggressive monetary policy has given investors a downpayment on future growth by stimulating increases in asset prices, investment returns ahead are vulnerable in this environment, especially if sustainable growth fails to materialiseIn a world that is trying to deleverage, Mike Amey argued, it is hard for returns on global assets to exceed global GDP growth.
The consequent bursting of that bubble has been painful for the economy, with virtually no growth in the four years to 1995.Central banks already look at asset markets for advance signals about the strength of the economy, but there are two reasons why central banks might want to respond more directly to increases in asset prices.
In addition, property-price booms lure in more investors, who are encouraged to borrow heavily in order to bet on further price gains—a course which eventually ends in tears.Indeed, the consequences of large increases in asset prices can be much more serious for economies than consumer-price inflation.
Shiller's studies of cases of widespread overvaluation by investors, what he termed "irrational exuberance," contradicted the once dominant assumption that markets are inherently rational (a view developed by Fama in the 1960s and early '70s) and led him to argue that financial markets are subject to "bubbles," or rapid increases in asset prices to unsustainable levels.
All projects were associated with increases in asset levels and other benefits at the household level; however, only four projects documented significant, positive impacts on women's ownership or control of some types of assets relative to a control group, and of those only one project provided evidence of a reduction in the gender asset gap.
