Financial Asset Valuations: The Total Demand Approach

Vytautas Zukauskas () and Guido Hulsmann ()
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Vytautas Zukauskas: GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut National de l'Horticulture et du Paysage
Guido Hulsmann: GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut National de l'Horticulture et du Paysage

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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: subjective value; value theory; asset pricing; central banks; fiat money; financial markets; monetary policy (search for similar items in EconPapers)
Date: 2019
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Published in Quarterly Review of Economics and Finance, 2019, 72, pp.121-131. ⟨10.1016/j.qref.2018.11.004⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02558948

DOI: 10.1016/j.qref.2018.11.004

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