Working Paper: NBER ID: w12753
Authors: Ricardo J. Caballero
Abstract: The world has a shortage of financial assets. Asset supply is having a hard time keeping up with the global demand for store of value and collateral by households, corporations, governments, insurance companies, and financial intermediaries more broadly. The equilibrium response of asset prices and valuations to these shortages has played a central role in global economic developments over the last twenty years. The so-called "global imbalances," the recurrent emergence of speculative bubbles (which recently have transited from emerging markets, to the dot-coms, to real estate, to gold...), the historically low real interest rates and associated "interest-rate conundrum," and even the widespread low inflation environment and deflationary episodes in parts of the world, all fall into place once one adopts this asset shortage perspective.
Keywords: Asset Shortages; Macroeconomics; Financial Development; Speculative Bubbles
JEL Codes: E3; E4; E5; F3; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Asset shortages (G32) | Increased asset prices (G19) |
| Increased asset prices (G19) | Global economic stability (F01) |
| Asset shortages (G32) | Speculative bubbles (E32) |
| Speculative bubbles (E32) | Macroeconomic fragility (E39) |
| Asset shortages (G32) | Low real interest rates (E43) |
| Financial development (O16) | Mitigation of asset shortages effects (E44) |
| Increased asset availability (G19) | Reduced speculative behavior (D84) |
| Reduced speculative behavior (D84) | More stable economic environments (P19) |