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Some Observations on the International Implications of Asset Bubbles

Some Observations on the International Implications of Asset Bubbles. Eric S. Rosengren President & CEO Federal Reserve Bank of Boston Federal Reserve Bank of Atlanta Conference Jekyll Island, Georgia November 6, 2010. www.bos.frb.org. Figure 1 Real House Price Increases. 1995 - 2009.

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Some Observations on the International Implications of Asset Bubbles

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  1. Some Observations on theInternational Implications ofAsset Bubbles Eric S. Rosengren President & CEO Federal Reserve Bank of Boston Federal Reserve Bank of Atlanta Conference Jekyll Island, Georgia November 6, 2010 www.bos.frb.org

  2. Figure 1Real House Price Increases 1995 - 2009 Source: OECD

  3. Housing Prices:International Observations • Several European countries also had rapid appreciation in real estate prices, despite having very different monetary policy from that of the United States • European countries with the same monetary policy had very different real estate appreciation; for example, Germany versus Ireland and Spain • Japan, which has been at the zero bound for more than a decade, still has not had appreciation in housing prices

  4. International Implications • Credit availability, rather than the cost of credit, may be the primary driver of asset bubbles • Consider the role of leveraged financial institutions in financing asset bubbles • Supervisory policy, rather than monetary policy, may be a more important tool for combating asset bubbles

  5. Figure 2Real GDP Change from Peak in Most Recent Recession Source: Haver Analytics

  6. International Spillovers • Countries without real estate asset bubbles have nonetheless been greatly impacted by asset bubbles • Global financial firms (hedge funds as well as banks) are an important transmission mechanism across national borders • Supervisory coordination may be the most effective way of addressing cross-border concerns with asset bubbles

  7. Conclusion • The international dimension to asset bubbles deserves more attention • Countries without asset bubbles should still be concerned over countries that are experiencing asset bubbles • Financial stability monitoring needs to look internationally for potential problems • International coordination of supervisory policies will be even more important in the future

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