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Monetary policy and speculative stock markets

Author

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  • Boehl, Gregor

Abstract

Financial market interactions can lead to large and persistent booms and recessions. Instability is an inherent threat to economies with speculative financial markets. A central bank's interest rate setting can amplify the expectation feedback in the financial market and this can lead to unstable dynamics and excess volatility. The paper suggests that policy institutions may be well-advised to handle tools like asset price targeting with care since such instruments might add a structural link between asset prices and macroeconomic aggregates. Neither stock prices nor indices are a good indicator to base decisions on.

Suggested Citation

  • Boehl, Gregor, 2017. "Monetary policy and speculative stock markets," IMFS Working Paper Series 119, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    • Handle: RePEc:zbw:imfswp:119
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    File URL: https://www.econstor.eu/bitstream/10419/173267/1/101157716X.pdf
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    Cited by:

    1. Lieberknecht, Philipp, 2018. "Financial Frictions, the Phillips Curve and Monetary Policy," MPRA Paper 89429, University Library of Munich, Germany.
    2. Böhl, Gregor, 2021. "Efficient solution and computation of models with occasionally binding constraints," IMFS Working Paper Series 148, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).

    More about this item

    Keywords

    monetary policy; asset pricing; nonlinearity; heterogeneous expectations; credit constraints;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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