Working Paper: NBER ID: w13558
Authors: Robert J. Shiller
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.
Keywords: Low interest rates; High asset prices; Economic models; Money illusion
JEL Codes: G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public understanding (H11) | asset prices (G19) |
| changes in popular economic models (F11) | asset prices (G19) |
| changes in popular economic models (F11) | interest rates (E43) |
| interest rates (E43) | asset prices (G19) |
| public understanding (H11) | interest rates (E43) |
| nominal/real interest rates (E43) | asset prices (G19) |