Arbeitspapier

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.

Language
Englisch

Bibliographic citation
Series: Sveriges Riksbank Working Paper Series ; No. 112

Classification
Wirtschaft
Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Subject
Monetary policy
Financial Variables

Event
Geistige Schöpfung
(who)
Goodhart, Charles
Hofmann, Boris
Event
Veröffentlichung
(who)
Sveriges Riksbank
(where)
Stockholm
(when)
2000

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Goodhart, Charles
  • Hofmann, Boris
  • Sveriges Riksbank

Time of origin

  • 2000

Other Objects (12)