Essays on the Interaction between Monetary Policy and Financial Markets


First Edition

Despite the consequences of financial bubbles on economic activity, it is still an open question to what extent the monetary policy should react to sharp fluctuations of equity prices. This dissertation attempts to contribute to the debate with some theoretical and empirical analyses of the relationship between monetary policy and financial markets.

Chapter 1 incorporates the effect of real equity prices on aggregate demand in a forward-looking expectations neo-Keynesian model. This effect arises either from a wealth effect or from a change in consumers' confidence. The objective function of monetary authorities depends on the output gap and the deviation of expected inflation from the target. A numerical simulation, based on US data, illustrates the quantitative importance of the financial market channel for various exogenous shocks.

In Chapter 2, the variation of equity prices enters explicitly in the loss function of the monetary authorities while, at the same time, it affects aggregate demand. This modifies the optimal monetary policy by increasing the volatility of the nominal interest rate.

Chapter 3 examines how the launch of the European single currency has affected expectations on future monetary policy by comparing the econometric results of a co-integrated VAR model on pre- and post- January 1999 data.

Chapter 4 deals with diverse methodological issues related to the estimation of the Taylor rule, which represents Central Bank decisions by a single and stable function. Several interesting results emerge from the modelling of the Fed funds rate over the period 1987-2002. In particular, assuming a discontinuous and asymmetric response of the Federal Reserve to fluctuations of equity prices, corrects the apparent instability of the rule.


Paperback - In French 16.20 €

Specifications


Publisher
Presses universitaires de Louvain
Author
Alain Durré,
Collection
Thèses de la Faculté des sciences économiques, sociales, politiques et de communication
Language
French
Publisher Category
Economics and Social Sciences > Economics > Monetary and Financial Economics
Publisher Category
Economics and Social Sciences > Economics
Publisher Category
Management > Finance, Accounting and Management Control
Publisher Category
Management > General Company Policy
Publisher Category
Management > Marketing and Sales
Publisher Category
Economics and Social Sciences
Publisher Category
Management
BISAC Subject Heading
BUS000000 BUSINESS & ECONOMICS
Onix Audience Codes
06 Professional and scholarly
CLIL (Version 2013-2019)
3283 SCIENCES POLITIQUES
Title First Published
01 January 2003
Type of Work
Thesis

Paperback


Publication Date
2003
ISBN-13
9782930344294
Extent
Main content page count : 173
Code
56967
Dimensions
16 x 24 x 1 cm
Weight
276 grams
List Price
16.20 €
ONIX XML
Version 2.1, Version 3

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