High asset-price volatility may be a natural consequence of asset shortages, finds a new paper from the Bank of Spain.

The authors argue that smaller bubbles and higher general welfare can be achieved by removing frictions in the rental market, notably for real estate, and so remove the shortage of assets.

The paper also finds that economies with tighter collateral constraints tend to have larger asset bubbles, but are less fragile in the face of negative funding shocks.

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