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A Modern Concept of Asset Price Inflation in Boom and Depression

Tags Financial MarketsBusiness CyclesPrices

07/11/2017Brendan Brown

Quarterly Journal of Austrian Economics 20, no. 1 (Spring 2017)

ABSTRACT: The aim of this article is to demonstrate how monetary disorder spawns asset price inflation. This is re-interpreted here according to modern usage as meaning an empowerment of irrational forces in asset markets. The author blends insights from behavioral finance research and from Austrian business cycle theory to develop a hypothesis about how mental flaws of investors become inflamed by monetary influences and how these contribute to episodes of widespread mal-investment. Identifying two types of asset price inflation—boom type and depression type—this article draws on the last century of history to illustrate both through several stages, accompanied by a variable intensity of inflation symptoms in the goods markets.

KEYWORDS: asset price inflation, Austrian business cycle theory, carry trade, hunt for yield, irrational exuberance
JEL CLASSIFICATION: B53, E14, E31, E32, E42, E43, E44, E58, F45, G02, G12, N12, N14
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Brendan Brown

Brendan Brown is a founding partner of Macro Hedge Advisors (www.macrohedgeadvisors.com) and senior fellow at Hudson Institute. As an international monetary and financial economist, consultant, and author, his roles have included Head of Economic Research at Mitsubishi UFJ Financial Group. He is also a Senior Fellow of the Mises Institute. He is the author of Europe’s Century of Crises under Dollar Hegemony: A Dialogue on the Global Tyranny of Unsound Money with Philippe Simonnot. His other books include The Case Against 2 Per Cent Inflation (Palgrave, 2018) and he is publisher of “Monetary Scenarios,” Euro Crash: How Asset Price Inflation Destroys the Wealth of Nations and The Global Curse of the Federal Reserve: Manifesto for a Second Monetarist Revolution.

Cite This Article

Brown, Brendan, "A Modern Concept of Asset Price Inflation in Boom and Depression," Quarterly Journal of Austrian Economics 20, no. 1 (Spring 2017): 29–60

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