Financial Variables and the Conduct of Monetary Policy
This paper analyses the role of financial variables in the conduct of monetary policy. In the baseline model for the analysis of interest rules, the inflation rate depends on the output gap, which is solely determined by its own lags and the lagged short-term real interest rate. However, from a theoretical point of view there are several other financial variables which may affect aggregate demand, and should therefore be taken into account in the estimation of an output gap equation. In order to assess the importance of financial variables such as asset prices and monetary aggregates for aggregate demand, we estimate a small structural model for 17 developed countries using quarterly data spanning 1973 - 1998. The results indicate that the effect of other financial variables, especially property and share prices, on the output gap is highly significant. It appears that in almost all of the countries in our data set it is necessary to control for the effect of other financial variables on the output gap in order to find a significant effect for monetary policy.
|Date of creation:||01 Nov 2000|
|Contact details of provider:|| Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden|
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shiratsuka, Shigenori, 1999.
"Asset Price Fluctuation and Price Indices,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 103-128, December.
- Glenn D. Rudebusch & Lars E. O. Svensson, 1998.
"Policy rules for inflation targeting,"
Working Papers in Applied Economic Theory
98-03, Federal Reserve Bank of San Francisco.
- Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar, pages -.
- Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters, in: Monetary Policy Rules, pages 203-262 National Bureau of Economic Research, Inc.
- Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy Rules for Inflation Targeting," NBER Working Papers 6512, National Bureau of Economic Research, Inc.
- Rudebusch, G.D. & Svensson, L.E.O., 1998. "Policy Rules for Inflation Targeting," Papers 637, Stockholm - International Economic Studies.
- Rudebusch, Glenn D & Svensson, Lars E O, 1998. "Policy Rules for Inflation Targeting," CEPR Discussion Papers 1999, C.E.P.R. Discussion Papers.
- Svensson, Lars E.O. & Rudebusch , Glenn, 1998. "Policy Rules for Inflation Targeting," Seminar Papers 637, Stockholm University, Institute for International Economic Studies.
- Hiroshi Shibuya, 1992. "Dynamic Equilibrium Price Index: Asset Price and Inflation," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 10(1), pages 95-109, February.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998.
"The Financial Accelerator in a Quantitative Business Cycle Framework,"
98-03, C.V. Starr Center for Applied Economics, New York University.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
- Ben S. Bernanke & Mark Gertler, 1999.
"Monetary policy and asset price volatility,"
Proceedings - Economic Policy Symposium - Jackson Hole,
Federal Reserve Bank of Kansas City, pages 77-128.
When requesting a correction, please mention this item's handle: RePEc:hhs:rbnkwp:0112. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lena Löfgren)
If references are entirely missing, you can add them using this form.