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Should the European Central Bank react to on price changes of assets?

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  • Jan-Egbert Sturm
  • Wolfgang Nierhaus

Abstract

The main objective of most central banks in the world including the European Central Bank is the safeguarding of stable prices. Measured by price trends for goods and services, the central banks in most industrialised countries have been quite successful in recent years. The strong price fluctuations for assets present a different picture: share prices have declined but real estate prices have clearly increased. Thus, some economists are arguing for an expanded definition of the inflation goal in which asset prices are included. A multi-country macroeconomic model shows that monetary policy in Europe from 1994 to 2001 would have been more restrictive under these conditions. But on the whole, the effects of a broader definition of the inflation goal are very small.

Suggested Citation

  • Jan-Egbert Sturm & Wolfgang Nierhaus, 2003. "Should the European Central Bank react to on price changes of assets?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 56(01), pages 54-55, January.
    • Handle: RePEc:ces:ifosdt:v:56:y:2003:i:01:p:54-55
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    References listed on IDEAS

    as
    1. Alchian, Armen A & Klein, Benjamin, 1973. "On a Correct Measure of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 173-191, Part I Fe.
    2. Goodhart, Charles, 2001. "What Weight Should Be Given to Asset Prices in the Measurement of Inflation?," Economic Journal, Royal Economic Society, vol. 111(472), pages 335-356, June.
    3. Frederic S. Mishkin, 2001. "The Transmission Mechanism and the Role of Asset Prices in Monetary Policy," NBER Working Papers 8617, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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