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KDI 경제정보센터

ENG
  • Economic

    Information

    and Education

    Center

한국관련자료
Central Banks, Stock Markets, and the Real Economy
CEPR
2023.12.06
This article summarizes empirical research on the interaction between monetary policy and asset markets, and reviews our previous theoretical work that captures these interactions. We present a concise model in which monetary policy impacts the aggregate asset price, which in turn influences economic activity with lags. In this context: (i) the central bank (the Fed, for short) stabilizes the aggregate asset price in response to financial shocks, using large-scale asset purchases if needed ("the Fed put"); (ii) when the Fed is constrained, negative financial shocks cause demand recessions, (iii) the Fed induces asset price volatility to counteract aggregate demand shocks; (iv) the Fed‘s belief about the future state of the economy drives the aggregate asset price; (v) macroeconomic news influences asset prices; (vi) more precise news heightens asset market volatility while reducing output volatility; (vii) disagreements between the market and the Fed microfound monetary policy shocks, and generate a policy risk premium.