So much for the market of goods and services – what about asset markets? It is true that nominal interest rates have been low for quite a while, which creates some risks for asset markets. We observed, prior to the crisis and during the period of the mislabelled Great Moderation, a disconnect between asset prices and inflation in the market for goods and services.
In February this year in a noted speech9, Jeremy Stein raised the possibility of this happening again as search for yield by financial institutions was beginning to affect prices in some riskier asset classes – such as covenant–lite loans, REITs, junk and high yield bonds.