Regional President Speech

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 Index, 1995=100 400 Ireland 350 United Kingdom 300 Spain 250 France 200 Canada 150 United States Italy 100 Germany 50 Japan 0 1995 1997 1999 2001 2003 2005 2007 2009 Source: OECD 2 Housing Prices: International Observations (cid:131) Several European countries also had rapid appreciation in real estate prices, despite having very different monetary policy from that of the United States (cid:131) European countries with the same monetary policy had very different real estate appreciation; for example, Germany versus Ireland and Spain (cid:131) Japan, which has been at the zero bound for more than a decade, still has not had appreciation in housing prices 3 International Implications (cid:131) Credit availability, rather than the cost of credit, may be the primary driver of asset bubbles (cid:131) Consider the role of leveraged financial institutions in financing asset bubbles (cid:131) Supervisory policy, rather than monetary policy, may be a more important tool for combating asset bubbles 4 Figure 2 Real GDP Change from Peak in Most Recent Recession Percent Change from Peak RealGDP 2 Canada 0 France -2 United States -4 Spain -6 Greece -8 United Kingdom -10 Germany Italy -12 Japan -14 Ireland -16 -8 -6 -4 -2 0 2 4 QuartersBefore and After Real GDP Trough Source: Haver Analytics 5 International Spillovers (cid:131) Countries without real estate asset bubbles have nonetheless been greatly impacted by asset bubbles (cid:131) Global financial firms (hedge funds as well as banks) are an important transmission mechanism across national borders (cid:131) Supervisory coordination may be the most effective way of addressing cross-border concerns with asset bubbles 6 Conclusion (cid:131) The international dimension to asset bubbles deserves more attention (cid:131) Countries without asset bubbles should still be concerned over countries that are experiencing asset bubbles (cid:131) Financial stability monitoring needs to look internationally for potential problems (cid:131) International coordination of supervisory policies will be even more important in the future 7

Eric Rosengren (2010, November 5). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_20101106_eric_rosengren

@misc{wtfs_regional_speeche_20101106_eric_rosengren,
  author = {Eric Rosengren},
  title = {Regional President Speech},
  year = {2010},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_20101106_eric_rosengren},
  note = {Retrieved via When the Fed Speaks corpus}
}