Eric DOR (UniversitŽ catholique de Lille, IESEG, Labores-CNRS et IRES UniversitŽ catholique de Louvain) Alain DURRE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
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This paper deals with some issues that recently arised from the puzzling evolution of Stock Markets during the nineties, in particular from the sharp increase of equity prices on the Nasdaq. We examine the hypothesis according to which such a bullish market could be explained by investors' increasingly optimistic expectations about the 'New economy' perspectives. We then analyse to what extent the evolution of financial markets may have recently affected aggregate demand in a stronger way than in the past. Using a simple aggregate model with rational expectations, we finally show how monetary policy decisions should be influenced by such changes in the behaviour of investors and consumers.
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Find related papers by JEL classification: E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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