The Stock Market Channel of Monetary Policy:

This paper argues that the stock market is an important channel of monetary policy. Monetary policy affects real economic activity because inflation levies a property tax on stocks in addition to an income tax on dividend payments. Inflation thus taxes stocks more heavily than it does bonds. Househo...

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Bibliographic Details
Main Author: Cosimano, Thomas F. (Author)
Format: Electronic eBook
Language:English
Published: Washington, D.C International Monetary Fund 1999
Series:IMF Working Papers Working Paper No. 99/22
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Summary:This paper argues that the stock market is an important channel of monetary policy. Monetary policy affects real economic activity because inflation levies a property tax on stocks in addition to an income tax on dividend payments. Inflation thus taxes stocks more heavily than it does bonds. Households alter their required rate of return as inflation changes, and firms adjust production in order to satisfy their shareholders' demands. As the stock market channel grows in importance, the appropriate intermediate target for the central bank is the price level, with price stability being the ultimate goal
Physical Description:1 Online-Ressource (25 p)
ISBN:145184395X
9781451843958

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