Asset Prices and Monetary Policy: Some Notes
AbstractThree issues regarding asset prices and monetary policy are clarified. First, increases in asset prices due to monetary expansion, despite their “paper” wealth nature, tend to make current consumers as a whole wealthier. Second, the weaker (stronger) effect of monetary policy on investment through the Tobin’s q effect is, the stronger (weaker) monetary effect on consumption through the wealth effect. Third, from the perspective of macroeconomic stability, the soundness of asset market performances does not depend on whether they are fundamental or not, but on their compatibility with the AD-AS balance in the long run.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0305006.
Length: 53 pages
Date of creation: 13 May 2003
Date of revision: 13 May 2003
Note: Type of Document - PDF; prepared on PC; to print on HP; pages: 53
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asset prices; monetary policy; paper wealth; wealth effect; Tobin's q; bubbles;
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-05-18 (All new papers)
- NEP-MAC-2003-05-18 (Macroeconomics)
- NEP-MON-2003-05-18 (Monetary Economics)
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