Niveau: Supérieur, Doctorat, Bac+8
No. Links between financial markets and economy, monetary policy and welfare (prepared for the 22nd Symposium on Banking and Monetary Economics – Strasbourg June 16-17) JEL Classification: E 44, E 52 Author: Patrick Artus Secretary: Laurence Sanchez-Garrido Abstract In several countries, the United States, the United Kingdom and Spain for instance, the economic equilibrium depends to a significant extent on developments in financial markets (valuation of assets, interest rates, etc.) via many channels: wealth effects linked to the value of assets, availability of loans backed by the value of property owned by the borrower, mortgages extended at variable rates or easy to refinance… Other countries (Germany for instance) are in an opposite situation, with very few links between financial markets and the economy. The optimal monetary policies pursued in these two groups of countries are very different. We build a dynamic theoretical model determining the value of assets, production, interest rates and inflation to characterise these differences between monetary policies in the two groups of countries and to assess the corresponding differences in welfare levels. This analysis makes it possible first to analyse the favourable or negative effects of the introduction of strong links between the economy and financial or property markets; also to examine the possibility of a conflict between the usual target of stabilizing inflation, production and smoothing interest rates, and the additional target of controlling asset prices, depending on the financial structure of the country.
- affect household demand
- stock market
- wealth effects
- household savings
- income
- financial markets
- links between
- rate