Hostname: page-component-8448b6f56d-jr42d Total loading time: 0 Render date: 2024-04-24T06:09:53.544Z Has data issue: false hasContentIssue false
  • English
  • Français

Monetary policy, asset prices and financial institutions

Published online by Cambridge University Press:  01 November 2013

Philip Booth
Philip Booth*
Affiliation:
Business School, City University London, London, UK
*
*Correspondence to: Philip Booth, Business School, City University London, 106 Bunhill Row, London, EC1Y 8TZ, UK. E-mail: p.booth@city.ac.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

The operation of monetary policy is likely to affect securities markets and asset values. This is of relevance to actuaries who work in or advise non-bank financial institutions such as pension funds and insurance companies. This paper examines different theories of monetary policy and the relationship between monetary policy and asset prices. It is found that central bank models have, at least until recently, tended to sideline consideration of the transmission of monetary policy through asset markets but that, with the implementation of quantitative easing, it is a subject that cannot be ignored. Many monetary schools, in fact, suggest that asset markets can be significantly affected by changes to monetary policy and those schools have lessons for important aspects of actuarial theory and practice.

Keywords

monetary policyactuarial practiceneo-classical/new Keynesian synthesismonetarismAustrian economics
Type
Papers
Information
Annals of Actuarial Science , Volume 8 , Issue 1 , March 2014 , pp. 9 - 41
Copyright
Copyright © Institute and Faculty of Actuaries 2013 

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.)

References

Alchian, A., Klein, B. (1973). On a Correct Measure of Inflation. Journal of Money, Credit, and Banking, 5(1, Part 1), 173–191.Google Scholar
Bank of England (2009). Monetary policy and asset purchases, Bank of England Inflation Report, May 2009.Google Scholar
Bank of England (2012). The distributional effects of asset purchases. Bank of England Quarterly Bulletin, 52(3), 254–266.Google Scholar
Bean, C., Paustian, M., Penalver, A., Taylor, T. (2010). ‘Monetary policy after the fall’, speech at Federal Reserve Bank of Kansas City Annual Conference, Jackson Hole Wyoming, US. Available at http://www.bankofengland.co.uk/publications/speeches/2010/speech444.pdf (accessed 30th July 2012).Google Scholar
Bean, C. (2003). ‘Asset prices, financial imbalances and monetary policy: are inflation targets enough?’, paper to the Bank for International Settlements, Basel, Switzerland. Available at http://www.bankofengland.co.uk/publications/speeches/2003/speech194.pdf (accessed 23rd September 2013).Google Scholar
Benford, J., Berry, S., Nikolov, K., Young, C., Robson, M. (2009). Quantitative Easing, Bank of England Quarterly Bulletin, 49(2), 90–100.Google Scholar
Benanke, B.S., Blinder, A.S. (1992). The Federal Funds Rate and the Channels of Monetary Transmission. American Economic Review, 82(4), 901–921.Google Scholar
Bernanke, B.S., Getler, M. (1995). Inside the Black Box: the credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27–48.Google Scholar
Bernanke, B.S., Gertler, M. (2000). Monetary Policy and Asset Price Volatility, working paper 7559, National Bureau of Economic Research, Massachusetts, US.Google Scholar
Bernanke, B.S., Gertler, M. (2001). Should Central Banks Respond to Movements in Asset Prices? American Economic Review, 91(2), 253–257.Google Scholar
Bernanke, B. (2010). ‘Monetary policy and the housing bubble’, speech to the Annual Meeting of the American Economic Association, Atlanta, Georgia, available at: http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm (accessed 30th July 2012).Google Scholar
Booth, P.M. ed. (2009). Verdict on the Crash: Causes and Policy Implications, Hobart Paperback 37, Institute of Economic Affairs, London, UK.Google Scholar
Bordo, M.D., Wheelock, D.C. (2004). Monetary Policy and Asset Prices: A Look Back at Past U.S Stock Market Booms. Federal Reserve Bank of St. Louis Review, November/December, 86(6), 19–44.Google Scholar
Borio, C.E.V., Kennedy, N., Prowse, S.D. (1994). Exploring Aggregate Asset Price Fluctuations Across Countries: Measurement, Determinants and Monetary Policy Implications, Economic Papers, Bank for International Settlements, Basel, Switzerland.Google Scholar
Borio, C., White, W. (2004). Whither monetary and financial stability? The implications of evolving policy regimes, BIS working paper no. 147.Google Scholar
Brunner, K., Meltzer, A.H. (1973). Mr. Hicks and the ‘Monetarists’. Economica, 40(157), 44–59.CrossRefGoogle Scholar
Butt, N., Domit, S., McLeay, M., Thomas, R. (2012). What can the money data tell us about the impact of QE? Bank of England Quarterly Bulletin, 52(4), 321–328.Google Scholar
Cecchetti, S.G., Genberg, H., Wadhwani, S. (2002). ‘Asset prices in a flexible inflation targeting framework’, NBER working paper no. 8970, Cambridge, MA, USA.Google Scholar
Chrystal, K.A., Mizen, P.D. (2011). Monetary aggregates restored? Capie and Webber revisited, chapter. in Money and Banking History: Essays in Honour of Forrest Capie, Mills T.C., Wood G.E. and Crafts N. ed. Routledge, Oxford, UK.Google Scholar
Chrystal, K.A., Mizen, P.D. (2001). Goodhart's Law: Its Origins, Meaning and Implications for Monetary Policy, paper for Festschrift in honour of Charles Goodhart.Google Scholar
Clarida, R., Galí, J., Gertler, M. (1999). “The Science of Monetary Policy: A New Keynesian Perspective”. Journal of Economic Literature, 37(4), 1661–1707.Google Scholar
Congdon, T. (2007). Keynes, the Keynesians and Monetarism. Edward Elgar, Cheltenham, UK.Google Scholar
Congdon, T. (2004). Monetarism – a rejoinder. World Economics, 5(3), 179–197.Google Scholar
Congdon, T. (2005). Money and Asset Prices in Boom and Bust, Hobart Paper 152, Institute of Economic Affairs, London, UK.Google Scholar
Congdon, T. (2010). Monetary Policy at the Zero Bound: a discussion of the effectiveness of monetary policy, with comments on contributions from Keynes, Krugman and Bernanke. World Economics, 11(1), 11–46.Google Scholar
Conover, M.C., Jensen, G.R., Johnson, R.R. (1999). Monetary environments and international stock returns. Journal of Banking and Finance, 23(9), 1357–1381.Google Scholar
Daines, M., Joyce, M.A.S.Tong, (2012). QE and the gilt market: a disaggregated analysis, Working Paper No. 466, Bank of England, London, UK.Google Scholar
Deacon, M., Derry, A. (1994). Estimating market interest rate and inflation expectations from the prices of UK government bonds. Bank of England Quarterly Bulletin, 34(2), 232–240.Google Scholar
De Soto, J.H. (2006). Money, Bank Credit, and Economic Cycles. Mises Institute, Alabama, USA.Google Scholar
De Soto, J.H. (2008). The Austrian School: Market Order and Entrepreneurial Activity. Edward Elgar, Cheltenham, UK.Google Scholar
Dillen, H., Sellin, P. (2003). Financial bubbles and monetary policy. Economic Review, 3/2003, 119–144.Google Scholar
Ehrmann, M., Fratzscher, M. (2004). Monetary Policy Transmission to Equity Markets. Journal of Money, Credit and Banking, 36(4), 719–737.Google Scholar
Fama, E.F. (1981). Stock Returns, Real Activity, Inflation, and Money. American Economic Review, 71(4), 545–565.Google Scholar
Friedman, M. ed. (1956). Studies in the Quantity Theory of Money. University of Chicago Press, Chicago, USA.Google Scholar
Friedman, M., Schwartz, A.J. (1963a). Money and Business Cycles. Review of Economics and Statistics, 45(1), 32–64.Google Scholar
Friedman, M., Schwartz, A.J. (1963b). A Monetary History of the United States 1867-1960. Princeton University Press, Princeton, USA.Google Scholar
Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1–17.Google Scholar
Friedman, M. (1970). The Counter Revolution in Monetary Theory, Institute of Economic Affairs, Occasional Paper 33, Institute of Economic Affairs, London, UK.Google Scholar
Haldane, A. (2010). Fair Value in Foul Weather. Speech to the Royal Institute of Chartered Surveyors, Bank of England, London, UK.Google Scholar
Hayek, F.A. (1931). Prices and Production. Augustus M. Kelly, New York, US.Google Scholar
Hayek, F.A. (1941). The Pure Theory of Capital. University of Chicago Press, Chicago, USA.Google Scholar
Goodfriend, M. (2002). Monetary Policy in the New Neoclassical Synthesis: A Primer. International Finance, 5(2), 165–191.Google Scholar
Goodhart, C., Hofmann, B. (2003). Deflation, Credit and Asset Prices, Hong Kong Institute for Monetary Research Working Paper 13/2003.Google Scholar
Jensen, G.R., Johnson, R.R. (1995). “Discount Rate Changes and Security Returns in the US, 1962–1991”. Journal of Banking and Finance, 19, 79–95.Google Scholar
Joyce, M., Lasaosa, A., Stevens, I., Tong, M. (2010). The Financial Market Impact of Quantitative Easing, Working Paper No. 393, Bank of England, London, UK.Google Scholar
Joyce, M., Tong, M., Woods, R. (2011). ‘The United Kingdom's quantitative easing policy: design, operation and impact’. Bank of England Quarterly Bulletin, 51, 200–212.Google Scholar
Keynes, J.M. (1936). The General Theory of Employment Interest and Money. Macmillan, London, UK.Google Scholar
King, M.A. (2002). No money, no inflation – the role of money in the economy. Bank of England Quarterly Bulletin, 42(3), 162–177.Google Scholar
Laidler, D. (2007). Milton Friedman – a Brief Obituary, University of Western, Ontario research report, #2007-1, University of Western Ontario, Canada.Google Scholar
McCallum, B.T., Nelson, E. (2010). Money and Inflation: Some Critical Issues. Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.Google Scholar
Booth, P., Matthews, K. ed. (2006). Issues in Monetary Policy: the relationship between money and financial markets. Wiley, UK.Google Scholar
Mayer, T., Minford, P. (2004). Monetarism – a retrospective. World Economics, 5(2), 147–185.Google Scholar
Meltzer, A.H. (1995). Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective. The Journal of Economic Perspectives, 9(4), 49–72.Google Scholar
Mishkin, F.S. ed. (2007). Monetary Policy Strategy. MIT press, Massachusetts, US.Google Scholar
Monetary Policy Committee (1999). The transmission mechanism of monetary policy. Bank of England, London, UK.Google Scholar
Pepper, G.T. (1970). The Money Supply, Economic Management and the Gilt-Edged Market. Journal of the Institute of Actuaries, 96(1), 1–46.Google Scholar
Pepper, G.T. (1994). The Money, Credit and Asset Prices. Macmillan, London, UK.Google Scholar
Pepper, G.T., Thomas, R.L. (1973). Cyclical Changes in the Level of the Equity and Gilt-edged Markets. Journal of the Institute of Actuaries, 99, 195–248.Google Scholar
Pepper, G.T., Oliver, M.J. (2006a). The Liquidity Theory of Asset Prices. Wiley, Chichester, UK.CrossRefGoogle Scholar
Pepper, G.T., Oliver, M.J. (2006b). Money, Bubbles and Crashes: should a central bank target asset prices?. In Matthew K. and Booth P.M. ed. (2006), Issues in Monetary Policy. Wiley, Chichester, UK.Google Scholar
Roubini, N. (2006). ‘Why central banks should burst bubbles’. International Finance, 9(1), 87–107.Google Scholar
Skarbek, D. (2009). F. A. Hayek's Influence on Nobel Prize Winners, Review of Austrian Economics, 22(1), 109–112.Google Scholar
Selody, J., Wilkins, C. (2004). Asset Prices and Monetary Policy: A Canadian Perspective on the Issues, Bank of Canada Review, Autumn 2004, 3–14.Google Scholar
Tobin, J. (1969). A General Equilibrium Approach to Monetary Theory. Journal of Money, Credit and Banking, 1(1), 15–29.Google Scholar
Vickers, J. (2000). Monetary Policy and Asset Prices. Manchester School, 68(0), 1–22, Supplement.CrossRefGoogle Scholar
Von Mises, L. (1981). The Theory of Money and Credit. Liberty Fund, Indianapolis, US. 5th Edition.Google Scholar
Wadhwani, S. (2008). Should monetary policy respond to asset price bubbles? Revisiting the debate, National Institute Economic Review, number 206, 25–34.Google Scholar
Wilkie, A.D. (1986). The Economic Basis of Interest Rates. Journal of the Institute of Actuaries, 113(II), 273–294.Google Scholar