Hostname: page-component-8448b6f56d-qsmjn Total loading time: 0 Render date: 2024-04-19T11:36:01.506Z Has data issue: false hasContentIssue false
  • English
  • Français

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

Published online by Cambridge University Press:  17 August 2016

Eric Dor  and
Alain Durré
Eric Dor
Affiliation:
Université catholique de Lille, IESEG, Labores-CNRS et IRES Université catholique de Louvain
Alain Durré
Affiliation:
IRES Université catholique de Louvain, and Labores-CNRS
Get access

Summary

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.

Résumé

Résumé

Cet article traite des questions récemment soulevées par les fortes fluctuations des marchés financiers dans les années 90 et, en particulier, de la forte hausse des valeurs sur le Nasdaq. Nous examinons l’hypothèse selon laquelle une telle bulle financière est due aux anticipations de plus en plus optimistes des agents sur les perspectives de la Nouvelle Economie. Nous analysons ensuite le fait de savoir si l’effet de la demande agrégée sur l’évolution des marchés financiers durant cette période a été plus important que par le passé. En utilisant un simple modèle agrégé avec anticipations rationelles, nous montrons comment les décisions de politique monétaire devraient prendre en compte les changements importants dans le comportement des investisseurs et des consommateurs.

Keywords

Monetary PolicyInflation and Output gap targetingNew Economy and Financial ExuberanceE430E310E520Politique monétaireStabilisation de l’output gap et de l’inflationNouvelle Economie et Exubérance financiereE430E310E520
Type
III. Finance
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 68 , Special Issue 1-2: The New Economy: Implications and Viability , 2002 , pp. 221 - 237
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2002 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We thank two anonymous referees for very useful comments and suggestions. This paper was presented at the congress ‘The New Economy : Implications and Viability”, Université de Metz (France), April 27-28, 2001. All remaining errors are ours.

**

Université catholique de Lille : Faculté Libre des Sciences économiques, Institut d’Economie Scientifique et de Gestion (IESEG), Labores-CNRS and Université catholique de Louvain : Département des Sciences économiques, Institut de Recherches économiques et Sociales (IRES-UCL).

***

Université catholique de Louvain : Département des Sciences économiques, Institut de Recherches économiques et Sociales (IRES-UCL). Durré’s research is supported by the Belgian government (Pôles d’Attraction inter-universitaires PAI P4/01).

References

Bernanke, B. and Gertler, M. (1999), Monetary Policy and Asset Price Volatility, Federal Reserve of Kansas City Conference on “New Challenges for Monetary Policy”.Google Scholar
Boucekkine, R., del Rio, F. and Licandro, O. (1999), “Endogenous Vs Exogenously Driven Fluctuations in Vintage Capital Models”, Journal of Economic Theory, 88 (1), 161–87.Google Scholar
Boucekkine, R. (2000), «Progrès technique incorporé et l’énigme du ralentissement de la croissance», Analyses économiques et Prévisions, 2000(1), 65–92.Google Scholar
Campbell, J.Y., Lo, A.W. and MacKinlay, A.C. (1997), The Econometrics of Financial Markets, Princeton University Press.Google Scholar
Cogley, T. (1999), “Should the Fed Take Deliberate Steps to Deflate Asset Price Bubbles?”, FRBSF Economic Review, n°l.Google Scholar
Dor, E. and Durre, A. (2000), Stock Prices, Exchange Rates and Monetary Policy. Labores-CNRS Working Paper, n° 2000–10.Google Scholar
Gordon, R., (1999), “Has the ‘New Economy’ Rendered the Productivity Slowdown Obsolete?”, unpublished manuscript, Nothwestern University.Google Scholar
Gray, J., (1976), “Wage Indexation: A Macroeconomic Approach”, Journal of Monetary Economics, 2, 221–235.Google Scholar
Greg, I., Kulish, N. and Schlesinger, J.M. (2001), “Capital Markets and Technology May Bring an Even Deeper Decline”, Wall Street Journal, 5th January.Google Scholar
Lettau, M. and Ludvigson, S. (2001), “Consumption, Aggregate Wealth, and Expected Stock Returns”, Journal of Finance, 56, 815–49.Google Scholar
Lucas, R.E. (1973), “Some International Evidence on Output-Inflation Tradeoffs”, American Economic Review, 63, 326–334.Google Scholar
Ludvigson, S. and Steindel, Ch. (1999), “How Important Is the Stock Market Effect on Consumption? Federal Reserve Bank of New York”, Economic Policy Review, 5(2).Google Scholar
Morck, R., Schleifer, A. and Vishny, R.W. (1990), “The Stock Market and Investment: Is the Market a Sideshow?”, Brookings Papers on Economic Activity, n°2, 157–202.Google Scholar
Poterba, J.M. (2000), “Stock Market Wealth and Consumption”, Journal of Economic Perspectives, Vol. 14, n°2, 99–118.Google Scholar
Shiller, R.J. (2000), Irrational Exuberance, Princeton University Press.Google Scholar
Smets, F. (1997), “Financial Asset Prices and Monetary Policy: Theory and Evidence”, CEPR Discussion Paper, Series n°1751.Google Scholar