Monetary policy and speculative stock markets

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMFS Working Paper Series ; No. 119

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Computational Techniques; Simulation Modeling
• Subject: monetary policy ; asset pricing ; nonlinearity ; heterogeneous expectations ; credit constraints

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Boehl, Gregor
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
• (where): Frankfurt a. M.
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/173267
• URN: urn:nbn:de:hebis:30:3-475930
• Last update: 10.03.2025, 11:46 AM CET