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Asset Prices, Inflation and Monetary Control - Re-inventing Money as a Policy Tool

Low inflation on goods markets provides no reliable precondition for asset-market stability; it might even promote the emergence of bubbles because interest rates and risk premia appear to be low. A further factor driving asset demand is easy availability of credit, which in turn roots in the banking system operating in a regime of endogenous central-bank money. A comparison of Bundesbank and ECB policies suggests that credit growth can be controlled more efficiently if rising interest rates are accompanied by some liquidity squeeze that supports the spillover of a monetary restriction to capital markets. The announcement effect of a central bank Charter including the goal of financial-market stability helps to deter private agents from excessive asset trading.

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File URL: http://www.uni-hohenheim.de/RePEc/hoh/papers/323.pdf
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Paper provided by Department of Economics, University of Hohenheim, Germany in its series Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim with number 323/2010.

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Length: 21 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:hoh:hohdip:323
Contact details of provider: Postal: D-70593 Stuttgart
Phone: 0711/459-22992
Fax: 0711/459-22993
Web page: http://www.uni-hohenheim.de/institution/institut-fuer-economics-11
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  1. Michael D. Bordo & Michael J. Dueker & David C. Wheelock, 2001. "Aggregate price shocks and financial instability: a historical analysis," Working Papers 2000-005, Federal Reserve Bank of St. Louis.
  2. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2009. "Securitisation and the bank lending channel," European Economic Review, Elsevier, vol. 53(8), pages 996-1009, November.
  3. Alessi, Lucia & Detken, Carsten, 2009. "'Real time'early warning indicators for costly asset price boom/bust cycles: a role for global liquidity," Working Paper Series 1039, European Central Bank.
  4. Linzert, Tobias & Schmidt, Sandra, 2008. "What explains the spread between the euro overnight rate and the ECB's policy rate?," Working Paper Series 0983, European Central Bank.
  5. Rüffer, Rasmus & Stracca, Livio, 2006. "What is global excess liquidity, and does it matter?," Working Paper Series 0696, European Central Bank.
  6. Todd Keister & Antoine Martin & James McAndrews, 2008. "Divorcing money from monetary policy," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 41-56.
  7. Tobias Adrian & Hyun Song Shin, 2009. "Money, Liquidity, and Monetary Policy," American Economic Review, American Economic Association, vol. 99(2), pages 600-605, May.
  8. Belke, Ansgar & Setzer, Ralph & Orth, Walter, 2008. "Global excess liquidity does it matter for house and stock prices on a global scale," Journal of Financial Transformation, Capco Institute, vol. 24, pages 145-154.
  9. David Cobham, 2003. "Why does the Monetary Policy Committee smooth interest rates?," Oxford Economic Papers, Oxford University Press, vol. 55(3), pages 467-493, July.
  10. Tobias Adrian & Hyun Song Shin, 2009. "Prices and quantities in the monetary policy transmission mechanism," Staff Reports 396, Federal Reserve Bank of New York.
  11. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
  12. Piti Disyatat, 2008. "Monetary policy implementation: Misconceptions and their consequences," BIS Working Papers 269, Bank for International Settlements.
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