Monetary Policy And Behavioural Finance
AbstractThere have been major advances in both theory and econometric techniques in mainstream macro-models and parallel advances in knowledge of the monetary transmission mechanism acting via asset prices. At the same time, behavioural finance has provided evidence that not all actors in the economy are 'fully rational' and this has influenced models of asset pricing on which part of the monetary policy transmission mechanism depends. Such uncertainty about the behaviour of asset prices has in part stimulated a move towards 'robustness', as an important criterion for guiding monetary policy. We argue that although we have discovered much, including 'what not to do', nevertheless our knowledge of the transmission mechanism is very incomplete. This is because, in spite of all the theoretical advances that have been made, there is still considerable uncertainty over the behaviour of agents, which has been reinforced by insights from behavioural finance. Copyright 2007 The Authors. Journal compilation � 2007 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economic Surveys.
Volume (Year): 21 (2007)
Issue (Month): 5 (December)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0950-0804
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- Giuseppe Ciccarone & Enrico Marchetti, 2011. "Macroeconomic effects of loss aversion in a signal extraction model," Working Papers 148, University of Rome La Sapienza, Department of Public Economics.
- Ciccarone, Giuseppe & Marchetti, Enrico, 2013. "Rational expectations and loss aversion: Potential output and welfare implications," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 24-36.
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