publication . Preprint . Article . 2014

Asset Pricing and Monetary Policy

Bingbing Dong;
Open Access
  • Published: 01 Jan 2014
Abstract
This paper examines the role of money in understanding the behavior of asset prices and whether and how monetary policy should react to asset prices such as stock prices and equity premiums. To do so, I introduce money via the form of transaction cost into a production economy with limited stock market participation where agents with lower inter-temporal elasticity of substitution (IES), called non-stockholders, have no access to stock market. In addition to facilitating transactions of consumption goods, money also redistributes wealth by countercyclically transferring resources from stockholders to non-stockholders, the main role of non-state contingent bonds....
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