Asset Prices and Monetary Policy: Some Notes

Junning Cai ()

Macroeconomics from EconWPA

Abstract: Three issues regarding asset prices and monetary policy are clarified. First, increases in asset prices due to monetary expansion, despite their “paper” wealth nature, tend to make current consumers as a whole wealthier. Second, the weaker (stronger) effect of monetary policy on investment through the Tobin’s q effect is, the stronger (weaker) monetary effect on consumption through the wealth effect. Third, from the perspective of macroeconomic stability, the soundness of asset market performances does not depend on whether they are fundamental or not, but on their compatibility with the AD-AS balance in the long run.

Keywords: asset prices; monetary policy; paper wealth; wealth effect; Tobin's q; bubbles (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2003-05-13, Revised 2003-05-13
Note: Type of Document - PDF; prepared on PC; to print on HP; pages: 53
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0305006

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