Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Economic Models

Robert Shiller

No 13558, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There has been a widespread perception in the past few years that long-term asset prices are generally high because monetary authorities have effectively kept long-term interest rates, which the market uses to discount cash flows, low. This perception is not accurate. Long-term interest rates have not been especially low. What has changed to produce high asset prices appears instead to be changes in popular economic models that people actually rely on when valuing assets. The public has mostly forgotten the concept of "real interest rate." Money illusion appears to be an important factor to consider.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-cba and nep-mon
Note: AP
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Citations: View citations in EconPapers (25)

Published as Robert J. Shiller, 2007. "Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Economic Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2007-2), pages 111-134.

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Journal Article: Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Economic Models (2007)
Working Paper: Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Economic Models (2007)
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