The Transmission Mechanism and the Role of Asset Prices in Monetary Policy

Frederic Mishkin

No 8617, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper surveys the transmission mechanisms of monetary policy beyond the standard interest rate channel by focusing on how monetary policy affects the economy through other asset prices. It outlines how the monetary transmission mechanisms operating through stock prices, real estate prices, and exchange rates affect which affect investment and consumption decisions of both firms and households. Given the role that asset prices play on the transmission mechanism, central banks have been often tempted to use them as targets of monetary policy. This paper shows that despite the significance of asset prices in the conduct of monetary policy, targeting asset prices by central banks is likely to lead to worse economic outcomes and might even erode the support for their independence.

JEL-codes: E40 E52 (search for similar items in EconPapers)
Date: 2001-12
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
Note: EFG ME
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Citations: View citations in EconPapers (174)

Published as Aspects of the Transmission Mechanism of Monetary Policy, Focus on Austria 3-4/2001. Osterreichische Nationalbank: Vienna 2001.

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