Alchian, A.A., and B. Klein, “On a Correct Measure of Inflation,” Journal of Money Credit and Banking, Vol. 5, No.1, pp. 172–91 (February 1973).
Bank of England, “The Interest Rate Transmission Mechanism in the United Kingdom and Overseas,” Quarterly Bulletin (May 1990), pp. 198–214.
Bank for International Settlements, Changes in Money-Market Instruments and Procedures: Objectives and Implications (Basle, March 1986).
Bank for International Settlements, “International Convergence of Capital Measurement and Capital Standards,” Basle Committee on Banking Supervision (Basle: Bank for International Settlements, July 1988).
Cutler, D.M., J. M. Poterba, and L. H. Summers, “Speculative Dynamics,” National Bureau of Economic Research Working Paper No. 3242 (January 1990).
Friedman, B., “Increasing Indebtedness and Financial Stability in the United States,” in Debt, Financial Stability and Public Policy (Kansas City: Federal Reserve Bank of Kansas City, 1986), pp. 27–54.
Friedman, B., and K.N. Kuttner, “Money, Income, Prices and Interest Rates,” American Economic Review, Vol. 82 No.3, pp. 472–92 (June 1992).
Goodhart, C.A.E., “Price Stability and Financial Fragility,” paper prepared for the Sixth International Conference, Institute for Monetary and Economic Studies, Bank of Japan (October 1993).
Hargraves, M., and G. J. Schinasi, and S. R. Weisbrod, “Asset Price Inflation in the 1980s: A Flow of Funds Perspective,” IMF Working Paper 93/77 (October 1993)
International Monetary Fund, “Balance Sheet Constraints and the Sluggishness of the Current Recovery,” May 1992 World Economic Outlook, Annex I (Washington: IMF, 1992a), pp. 47–51.
International Monetary Fund, “Asset Price Deflation, Balance Sheet Adjustment, and FinancialFragility,” October 1992 World Economic Outlook, Annex I (Washington: IMF, 1992b), pp. 57–68.
International Monetary Fund, “Monetary Policy, Financial Liberalization, and Asset Price Inflation,” May 1993 World Economic Outlook, Annex I (Washington: IMF, 1993), pp. 81–95.
Kaufman, H., “Debt: The Threat to Economic and Financial Stability,” in Debt, Financial Stability and Public Policy (Kansas City: Federal Reserve Bank of Kansas City, 1986), pp. 15–26.
Kennickell, A. and J. Shack-Marquez, “Changes in Family Finances from 1983 to 1989: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, Vol. 78, No.1 (January 1992), pp. 1–18.
Samiei, S. H., and G. J. Schinasi, “Real Estate Price Inflation, Monetary Policy, and Expectations in the United States and Japan,” IMF Working Paper (1994, forthcoming).
Schinasi, G. J., and M. Hargraves, “‘Boom and Bust’ in Asset Markets in the 1980s: Causes and Consequences,” Staff Studies for the World Economic Outlook, World Economic and Financial Survey (IMF, December 1993).
Sargent, J.R., “Deregulation, Debt and the Downturn in the U.K. Economy,” National Institute Economic Review, No. 137 (London, August 1991).
Takeda, M. and P. Turner, “The Liberalization of Japan’s Financial Markets: Some Major Themes,” Economic Papers, No. 34 (Basle: Bank for International Settlements, November 1992).
Weisbrod, S. R., H. Lee, and L. Rojas-Suarez, “Bank Risk and the Declining Franchise Value of the Banking Systems in the United States and Japan,” IMF Working Paper 92/45 (Washington, 1992).
Wojnilower, A.W., “The Central Role of Credit Crunches in Recent Financial History,” Brookings Papers on Economic Activity, 2 (1980), pp. 277–326.
The countries that experienced an asset price inflation include the United States, Japan, the United Kingdom, Australia, New Zealand, and the Nordic countries. More recently, the phenomenon of rapidly rising asset prices has appeared in Germany, France, Switzerland, several of the fast-growing Asian economies, and a number of other developing countries. For a more detailed examination of many of the issues discussed in this paper, see Schinasi and Hargraves (1993).
There is some econometric evidence that the information content of interest rates was greater in the 1980s than in previous decades and that interest rates have become a more important determinant of real estate prices and real estate market activity generally. On the first point, see Friedman and Kuttner (1992), and on the second, see Samiei and Schinasi (1994).
For a discussion of the extent to which excess liquidity and credit existed during this period in the United States, Japan, and the United Kingdom, see Schinasi and Hargraves (1993) pp. 14-20.
Note that the concept of inflationary pressure (that is, excess liquidity) is separate from the manifestation of inflationary pressure, which need not always take on conventional forms such as rises in consumer prices.
For a detailed discussion of the effects of these structural changes, see Schinasi and Hargraves (1993).
In the United States, much of the increase in debt between 1983 and 1989 was concentrated in families reporting the most financial assets. The mean real home value rose much more than the median, and the increase occurred largely in families with incomes above $50,000. The highest income groups increased the median size of their mortgage debt, while the lowest reduced their median value. See Kennickell and Shack-Marquez (1992).
For a detailed analysis of the tendency for persistence in price changes in a broad array of asset markets in a number of countries, see Cutler, Poterba, and Summers (1990).
It was not immediately obvious at the time that this deregulation would affect the monetary mechanism, and in some policy and academic quarters it was adamantly maintained that there was no change in the mechanism at all. Woljinower (1980), in contrast, suggested that there would be a significant change in the mechanism in the United States but his views did not at the time have much force in the policy debate.
This point is emphasized by Woljinower (1980).
A similar chart can be shown for the United States and the United Kingdom.
Other channels were interest-sensitive components of aggregate demand such as automobiles, durable consumer goods, and business investment.
For a fuller discussion of this point see Schinasi and Hargraves (1993), pp. 13-18. An early proponent of including a broad array of transactions prices was Fisher (1913). Alchian and Klein (1973) provide microeconomic justification for including asset prices, and Goodhart (1993) discusses this issue in the context of housing prices in the United Kingdom.