Fiscal and Monetary Policy, Stocks and the Term Structure of Interest Rates

Toichiro Asada, Peter Flaschel, Tarik Mouakil and Christian Proaño
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Toichiro Asada: Chuo University
Tarik Mouakil: University of Cambridge

Chapter 7 in Asset Markets, Portfolio Choice and Macroeconomic Activity, 2011, pp 158-178 from Palgrave Macmillan

Abstract: Abstract In this final chapter we will use the insights obtained in the two previous ones, namely that financial markets must be modelled by flow adjustment rules when balance of payments effects are to be discussed. In view of this, we now also employ disequilibrium adjustment rules for the financial markets in the case of a closed economy, though these rules remain based on a Tobinian portfolio (desired stocks) approach to financial markets. Moreover — in order to keep the model simple compared to the KMG approach — we now make use of a dynamic multiplier approach to goods markets behaviour in place of the full Metzlerian expected sales/unintended inventory changes approach, in order to overcome the extreme limit case of continual IS-equilibrium in the simplest way possible (the latter can lead to implausible comparative static results compared to its disequilibrium formulation in the case when income distribution matters on the market for goods).

Keywords: Interest Rate; Monetary Policy; Financial Market; Central Bank; Term Structure (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-30777-3_7

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DOI: 10.1057/9780230307773_7

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