Definition: An asset bubble is formed when the prices of assets are over-inflated due to excess demand. It usually occurs when investors all flock to a particular asset class, such as real estate or commodities such as oil. This happened in 2005-2006 with real estate, and in the summer of 2008 with oil prices. It is a form of inflation that is not always accurately captured in the Consumer Price Index (CPI). For that reason, asset bubbles can be aggravated by low interest rates.
Also Known As: asset inflation
Examples:
Many experts blame Former Federal Reserve Chairman Alan Greenspan for keeping interest rates too low, creating an asset bubble in real estate which led to the 2008 credit crisis.
