Asset Price Regulators Unite: You Have Macroeconomic Stability to Win and the Microeconomic Losses are Second-order

Ron Bird, Gordon Menzies, Peter Dixon and Maureen Rimmer

No 5, Working Paper Series from The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney

Abstract: The Global Financial Crisis (GFC) has rekindled debate about the desirability of governmental interference in asset markets – either through the operation of policy levers, or, through the chosen institutional setup. In this paper we quantify economic costs due to mispricing of real assets in the USAGE model of the United States. The microeconomic costs of misallocated capital are second-order small. The model suggests that regulators (or central banks) who restrain the volatility of asset prices do so without incurring large economic costs.

Keywords: financial crises; macroeconomic modeling; real assets (search for similar items in EconPapers)
JEL-codes: C50 F41 G01 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-04-01
New Economics Papers: this item is included in nep-cba
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Working Paper: Asset Price Regulators, Unite: you have Macroeconomic Stability to Win and the Microeconomic Losses are Second-order (2010)
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