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Financial asset valuations: The total demand approach

Vytautas Žukauskas and Jörg Guido Hülsmann

The Quarterly Review of Economics and Finance, 2019, vol. 72, issue C, 123-131

Abstract: This article provides an explanation of how monetary policy impacts the prices of financial assets relative to the prices of non-financial assets. In the standard view, monetary policy has no such effect. It may influence financial-asset prices in various ways, but it does not all by itself entail any tendency for financial-asset prices to rise faster than the prices of non-financial assets. We argue that the neglected “total demand approach” sheds a different light on this issue. Total-demand theory shows that monetary policy may have such a consequence. It also brings the additional advantage of simplifying the theory of monetary policy, in that it allows to conceptualise unconventional monetary policy and changes in the quality of money within a single theoretical framework.

Keywords: Monetary policy; Asset pricing; Financial markets; Central banks; Subjective value; Value theory (search for similar items in EconPapers)
JEL-codes: G12 E52 E58 D46 E44 (search for similar items in EconPapers)
Date: 2019
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