Financial Asset Inflation and Monetary Policy Dilemma - Institute of Finance, Chinese Academy of Social Sciences. Bookhouse

Author: Zhao Yue
Publisher:
Publish Date: 2006-06-01
Features: The expansion of financial assets and its profound impact on the macroeconomy have posed a challenge to monetary authorities in various countries: Should monetary policy focus on financial asset prices? Should monetary policy respond when financial asset inflation is detected? This book first analyzes the nonlinear microfoundations of financial asset prices from the perspectives of information theory, diversified economic rationality, self-reinforcing expectations, and trading mechanisms. On this basis, it extends traditional macroeconomic models and constructs a general equilibrium model (FM-IS-LM model) that includes a financial asset trading market. Second, the author uses this model to historically and logically deconstruct the causes of the Great Depression in the United States in the 1930s and the sustained sluggishness of the Japanese economy in the 1990s, emphasizing that excessive bank credit intervention in the capital market is the main reason for financial asset inflation and crises.