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The link between monetary policy and asset price movements has been of perennial interest to policy makers. In this Paper we consider the potential case for pre-emptive monetary restrictions when asset price reversals can have serious effects on real output. First, we provide some historical...
Persistent link: https://www.econbiz.de/10005504739
We examine empirically whether asset prices and exchange rates may be admitted into a standard interest rate rule, using data for the US, the UK and Japan since 1979. Asset prices and exchange rates can be employed as information variables for a standard `Taylor-type' rule or as arguments in an...
Persistent link: https://www.econbiz.de/10005667007
Asset price inflation presents central banks with a puzzle. I examine the case of Germany, 1925-7, when the Reichsbank intervened to bring down stock prices, rectify imbalances and curb speculation. Present value relations, comparisons with historical valuation measures and the time-series...
Persistent link: https://www.econbiz.de/10005792124
The Riksbank faces challenges with regard to each of its three core functions, conducting monetary policy with the objective of stabilising inflation around the inflation target and resource utilisation around a sustainable level, promoting a safe and efficient payment system and thereby...
Persistent link: https://www.econbiz.de/10011083263
Central banks’ economic and political importance has grown in advanced economies since the start of the Great Financial Crisis in 2007. An unwillingness or inability of governments to use countercyclical fiscal policy has made monetary policy the only stabilization tool in town. However, much...
Persistent link: https://www.econbiz.de/10011084413
My lessons from six years of practical policy-making include (1) being clear about and not deviating from the mandate of flexible inflation targeting (price stability and the highest sustainable employment), including keeping average inflation over a longer period on target; (2) not adding...
Persistent link: https://www.econbiz.de/10011083489
How should monetary and fiscal policy react to adverse financial shocks? If monetary policy is constrained by the zero lower bound on the nominal interest rate, subsidising the interest rate on loans is the optimal policy. The subsidies can mimic movements in the interest rate and can therefore...
Persistent link: https://www.econbiz.de/10011083684
Most analyses of banking crises assume that banks use real contracts. However, in practice contracts are nominal and this is what is assumed here. We consider a standard banking model with aggregate return risk, aggregate liquidity risk and idiosyncratic liquidity shocks. We show that, with...
Persistent link: https://www.econbiz.de/10009293987
The work presented in this paper falls into two parts. First, using a simple model and within the context of the central bank’s objective of price stability, it is shown that the optimal monetary response to unexpected changes in asset prices depends on how these changes affect the central...
Persistent link: https://www.econbiz.de/10005504548
In this paper we investigate central bank accountability by looking at the effect of transparency in a simple monetary policy game with an overriding mechanism. Monetary policy is transparent if there is little uncertainty about the central banker's preferences for inflation stabilization...
Persistent link: https://www.econbiz.de/10005666712