Asset prices, financial conditions and the transmission of monetary policy

Charles A. E. Goodhart and Boris Hofmann

Proceedings, 2001, issue Mar

Abstract: In this paper we assess the role of asset prices as information variables for aggregate demand conditions and in the transmission of monetary policy. A Monetary Conditions Index, a weighted average of the short-term interest rate and the exchange rate, has commonly been used as a composite measure of the stance of monetary policy and aggregate demand conditions. However, other asset prices, property and share prices, also affect aggregate demand. By looking at reduced form coefficient estimates and VAR impulse responses we derive Financial Conditions Indices, a weighted average of the short-term real interest rate, the effective real exchange rate, real property and real share prices, for the G7 countries. We find that house and share prices get a substantial weight in such an index and that the derived Financial Conditions Indices contain useful information about future inflationary pressures.

Keywords: Inflation (Finance); Asset pricing; Monetary policy (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
https://www.frbsf.org/wp-content/uploads/conf6.pdf Full Text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfpr:y:2001:i:mar:x:3

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Proceedings from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().