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Financial asset valuations: The total demand approach

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  • Žukauskas, Vytautas
  • Hülsmann, Jörg Guido

Abstract

This article provides an explanation of how monetary policy impacts the prices of financial assets relative to the prices of non-financial assets. In the standard view, monetary policy has no such effect. It may influence financial-asset prices in various ways, but it does not all by itself entail any tendency for financial-asset prices to rise faster than the prices of non-financial assets. We argue that the neglected “total demand approach” sheds a different light on this issue. Total-demand theory shows that monetary policy may have such a consequence. It also brings the additional advantage of simplifying the theory of monetary policy, in that it allows to conceptualise unconventional monetary policy and changes in the quality of money within a single theoretical framework.

Suggested Citation

  • Žukauskas, Vytautas & Hülsmann, Jörg Guido, 2019. "Financial asset valuations: The total demand approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 123-131.
    • Handle: RePEc:eee:quaeco:v:72:y:2019:i:c:p:123-131
    DOI: 10.1016/j.qref.2018.11.004
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    More about this item

    Keywords

    Monetary policy; Asset pricing; Financial markets; Central banks; Subjective value; Value theory;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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