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The Cost Of Capital, Asset Prices And The Affects Of Monetary Policy

Author

Listed:
  • Edgar A. Ghossoub

    (The University of Texas at San Antonio)

  • Robert Reed

    (University of Alabama Tuscaloosa)

Abstract

The primary objective of this paper is to study the interaction between mon- etary policy, asset prices, and the sources of technological progress. We develop a two sector model in which ?nancial institutions promote risk sharing and ?at money alleviates trade frictions. Since the price of capital goods depends on in- ?ation, the Friedman Rule may be sub-optimal. In addition, di¤erent sources of productivity can a¤ect the degree of risk sharing. Although the optimal money growth rate falls in response to an increase in productivity in either sector of the economy, monetary policy should react more aggressively to investment-speci?c productivity. Our results are broadly consistent with U.S. monetary policy dur- ing the postwar period.

Suggested Citation

  • Edgar A. Ghossoub & Robert Reed, 2009. "The Cost Of Capital, Asset Prices And The Affects Of Monetary Policy," Working Papers 0068, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:00113eco
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Asset Prices; Investment; Monetary Policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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