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Wealth Effects and Monetary Policy

Author

Listed:
  • I. Arnold
  • P.J.A. van Els
  • J. de Haan

Abstract

This paper explores the importance of wealth effects for monetary policy in the context of the policy strategy of the European Central Bank (ECB). Causality tests indicate that nominal equity prices have predictive power for ECB policy indicators of real activity, while housing prices have predictive power for price indicators, and money and credit aggregates. This means that, at least indirectly, monetary policy takes asset price developments into account. The results, however, point to strong differences among individual euro area countries. On the question of whether or not a central bank should explicitly target asset prices directly or through the inclusion of asset prices in its measure of inflation, counterfactual model simulations suggest that this would not have led to a significantly different macroeconomic performance in the euro area.

Suggested Citation

  • I. Arnold & P.J.A. van Els & J. de Haan, 2002. "Wealth Effects and Monetary Policy," WO Research Memoranda (discontinued) 719, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:wormem:719
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    File URL: https://www.dnb.nl/binaries/wo0719_tcm46-146011.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Slacalek Jiri, 2009. "What Drives Personal Consumption? The Role of Housing and Financial Wealth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-37, October.
    2. Massimo GIULIODORI, 2002. "Monetary Policy Shocks and the Role of House Prices Across European Countries," Working Papers 164, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Massimo Giuliodori, 2005. "The Role Of House Prices In The Monetary Transmission Mechanism Across European Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(4), pages 519-543, September.

    More about this item

    Keywords

    Wealth effects; asset prices; monetary policy;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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