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Monetary Policy in an Era of Capital Market Inflation

Author

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  • Jan Toporowski

    (Reader in Economics, South Bank University)

Abstract

The theory of capital market inflation argues that the values of long- term securities markets are determined by a disequilibrium inflow of funds into those markets. The resulting over-capitalization of companies leads to increased fragility of banking and undermines monetary policy and stable relationships between short- and long-term interest rates, such as that postulated by Keynes in his theory of the speculative demand for money. Moreover, while the increased fragility of banking is an immediate effect, capital market inflation also creates an unstable Ponzi financing structure in the capital market as a whole.

Suggested Citation

  • Jan Toporowski, 2000. "Monetary Policy in an Era of Capital Market Inflation," Macroeconomics 0004026, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0004026
    Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 18; figures: included
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0004/0004026.pdf
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    References listed on IDEAS

    as
    1. Goodhart, Charles, 1986. "Financial Innovation and Monetary Control," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 2(4), pages 79-102, Winter.
    2. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    3. Jan Toporowski, 1998. "Capital Market Inflation and Privatisation in Capitalist and Post-Communist Economies," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 1(2), pages 77-89, November.
    4. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    5. Kregel, J A, 1995. "Neoclassical Price Theory, Institutions, and the Evolution of Securities Market Organisation," Economic Journal, Royal Economic Society, vol. 105(429), pages 459-470, March.
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    Cited by:

    1. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS University of London, UK.

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    JEL classification:

    • E - Macroeconomics and Monetary Economics

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