Συλλογές
Τίτλος The connection between monetary policy and financial markets
Δημιουργός Chachlioutakis, Christos
Συντελεστής Athens University of Economics and Business, Department of Marketing and Communication
Philippopoulos, Apostolis
Athens University of Economics and Business, Department of Business Administration
Τύπος Text
Φυσική περιγραφή 47p.
Γλώσσα en
Περίληψη The dissertation examines the link between monetary policy and financial markets and how shifts in monetary policy affects a wide variety of financial products such as bonds, stocks and derivatives. The relationship between monetary policy and financial markets is by no means a one way street however. Markets reflect the expectations of market participants about future economic and monetary developments. These expectations, provide valuable information for central banks in determining the optimal future course of monetary policy. The recent financial crises has confronted central banks with a lot of questions about the theory of monetary policy and the results of the policy, in general. Monetary authorities throughout the world have been responding to the crisis by taking both conventional and unconventional policy measures. Monetary policy and financial markets are fully linked. Central banks conduct monetary policy by directly and indirectly influencing financial market prices. The relationship between monetary policy and financial markets is by no means a one way street, however. Financial market prices reflect the expectations of market participants about future economic and monetary developments. These expectations, in turn, provide valuable information for central banks in determining the optimal future course of monetary policy. In the vast majority of nations (or group of nations) central banks operate under regulations that refer to additional objectives such as full employment, maximum sustainable growth, stable interest rates or stable exchange rates. To meet their objectives, central banks intervene in financial markets. It is through the financial markets that monetary policy affects the real economy. In other words, financial markets are the connecting link in the transmission mechanism between monetary policy and the real economy. Monetary policy affects financial markets through various channels. However, the transmission process from monetary policy to financial markets and finally to the real economy has a single source: the monetary policy instrument as it noted by Philipp Hildebrand (2006). Typically, the monetary policy instrument is a financial market price which is directly set or closely controlled by the central bank. For most central banks with floating exchange rates, the monetary policy instrument is a short-term interest rate. Under fixed exchange rate regimes, a particular exchange rate serves as the instrument. Under monetary targeting regimes, the instrument is typically the quantity of central bank money in the banking system. The precise sequence of the monetary transmission mechanism depends on the instrument which is used. As it mentioned above, the link between monetary policy and financial markets is not a one way street. Financial market prices reflect market expectations about future, such as inflation, output, and the likely course of monetary policy. It is therefore natural and appropriate for central banks to evaluate closely the information contained in market prices. In other words, market expectations can and should influence the setting of monetary policy. However Philipp Hildebrand (2006) mentioned that central banks must exercise caution in using the information extracted from market expectations as an input to formulating monetary policy. The information value of financial market prices for monetary policy purposes decreases to the extent that they no longer reflect an independent evaluation by millions of market participants about probable future developments in the economy and in financial markets. Alan Blinder (1998) said the «dog chasing its tail» problem: Financial markets look for guidance from the central bank, the central bank looks for guidance from financial markets, and both parties temporarily lose sight of the underlying factors determining inflation, namely the output gap in the short to medium-un, and. To avoid this trap, central banks should exercise due caution when making use of financial market expectations. Financial markets provide useful information for a central bank in search of the optimal monetary policy path. But, as Otmar Issing (2005) said, central banks must ensure that they do «not end up merely executing the expectations developed in the market». The information about expected future developments reflected in market prices must be continuously cross-checked against a wide range of monetary and economic indicators in what amounts to a «checks and balances» approach to monetary policy.
Λέξη κλειδί Monetary policy
Financial markets
Stock Market
Bonds
Commodities
Exchange rate
Financial technology
Credibility
Transparency
Quantitative Easing Programme (QE)
Financial technology
Ημερομηνία 30-09-2016
Άδεια χρήσης https://creativecommons.org/licenses/by/4.0/