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Monetary policy and asset prices with imperfect credit markets

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  • Charles T. Carlstrom
  • Timothy S. Fuerst

Abstract

The Modigliani-Miller theorem is fundamental to the theory of corporate finance. One of the theorem's immediate implications is that there is no reason for the monetary authority to respond to asset prices. This article posits a world in which the Modigliani-Miller theorem does not hold. The authors assume that the amount of an entrepreneur's external financing is limited by the amount of collateral she holds. They examine the implications for the monetary authority in such an environment.

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File URL: http://www.clevelandfed.org/research/Review/2001/imperfect.pdf
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File URL: http://www.clevelandfed.org/research/Review/2001/imperfect.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Economic Review.

Volume (Year): (2001)
Issue (Month): Q IV ()
Pages: 51-59

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Handle: RePEc:fip:fedcer:y:2001:i:qiv:p:51-59

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Related research

Keywords: Monetary policy;

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Cited by:
  1. Bjørnland , Hilde & Leitemo, Kai, 2005. "Identifying the interdependence between US monetary policy and the stock market," Research Discussion Papers 17/2005, Bank of Finland.

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