Monetary Policy and the New Economy: Between Supply Shock and Financial Bubble

Eric Dor () and Alain Durré ()

No 2002028, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper deals with some issues that recently arised from the puzzling evolution of Stock Markets during the nineties, in particular from the sharp increase of equity prices on the Nasdaq. We examine the hypothesis according to which such a bullish market could be explained by investors' increasingly optimistic expectations about the 'New economy' perspectives. We then analyse to what extent the evolution of financial markets may have recently affected aggregate demand in a stronger way than in the past. Using a simple aggregate model with rational expectations, we finally show how monetary policy decisions should be influenced by such changes in the behaviour of investors and consumers.

Keywords: Monetary Policy; Inflation and Output gap targeting; New Economy and Financial Exuberance (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
Pages: 17
Date: 2002-06-01
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Citations: View citations in EconPapers (1)

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Journal Article: Monetary Policy and the New Economy. Between Supply Shock and Financial Bubble* (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2002028

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