Working Paper 17-05 - Monetary Policy, Asset Prices and Economic Growth in the World Economy over the 1995-2004 Period: A counterfactual simulation with the NIME Model

Eric Meyermans and Patrick Van Brusselen

Working Papers from Federal Planning Bureau, Belgium

Abstract: Over the 1995-2004 period, the evolution of stock market indices in the United States and Europe exhibited a distinct boom-and-bust pattern, rising dramatically during the second half of the 1990s and falling sharply at the turn of the century. These changes in asset prices affected household wealth and the financing cost of investments, so that the period of rising asset prices was also characterised by strong economic growth, while the period of falling asset prices saw weaker growth. As equity markets were largely driven by "irrational exuberance"Â in the second half of the 1990s, it is sometimes argued that, in order to foster a more balanced growth path, the monetary authorities in the United States and the euro area should have targeted changes in a price index which not only includes contemporaneous consumer prices but also asset prices.In this Working Paper we assess the worldwide macroeconomic implications of an interest rate rule whereby the major central banks of the world target not only changes in the traditional consumer price index but also changes in asset prices. We do this by simulating the nime model over the 1995-2004 period with an interest rate rule similar to the well-known Taylor rule, but augmented for changes in asset prices.

Keywords: Macroeconometric world model; Monetary policy; Euro area; World economy (search for similar items in EconPapers)
JEL-codes: C15 C5 E17 E5 F2 (search for similar items in EconPapers)
Date: 2005-12-29
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.plan.be/uploaded/documents/200605091448059.WP0517en.pdf english version (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable

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:fpb:wpaper:200517

Access Statistics for this paper

More papers in Working Papers from Federal Planning Bureau, Belgium Contact information at EDIRC.
Bibliographic data for series maintained by Dominique van der Wal ().