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Monetary Policy and the New Economy : Between Supply Shock andFinancial Bubble*

Published online by Cambridge University Press:  17 August 2016

Eric Dor  and
Alain Durré
Eric Dor
Affiliation:
Université catholique de Lille, IESEG, Labores-CNRS et IRES Université catholique de Louvain
Alain Durré
Affiliation:
IRES Université catholique de Louvain, and Labores-CNRS
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Summary

This paper deals with some issues that recently arised from the puzzlingevolution of Stock Markets during the nineties, in particular from the sharpincrease of equity prices on the Nasdaq. We examine the hypothesis accordingto which such a bullish market could be explained by investors’ increasinglyoptimistic expectations about the ‘New economy’ perspectives. We thenanalyse to what extent the evolution of financial markets may have recentlyaffected aggregate demand in a stronger way than in the past. Using a simpleaggregate model with rational expectations, we finally show how monetarypolicy decisions should be influenced by such changes in the behaviour ofinvestors and consumers.

Résumé

Résumé

Cet article traite des questions récemment soulevées par les fortesfluctuations des marchés financiers dans les années 90 et, en particulier,de la forte hausse des valeurs sur le Nasdaq. Nous examinons l’hypothèseselon laquelle une telle bulle financière est due aux anticipations de plusen plus optimistes des agents sur les perspectives de la Nouvelle Economie.Nous analysons ensuite le fait de savoir si l’effet de la demande agrégéesur l’évolution des marchés financiers durant cette période a été plusimportant que par le passé. En utilisant un simple modèle agrégé avecanticipations rationelles, nous montrons comment les décisions de politiquemonétaire devraient prendre en compte les changements importants dans lecomportement des investisseurs et des consommateurs.

Keywords

Monetary PolicyInflation and Output gap targetingNew Economy and Financial ExuberanceE430E310E520Politique monétaireStabilisation de l’output gap et de l’inflationNouvelle Economie et Exubérance financiereE430E310E520

Information

Type
III. Finance
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 68 , Special Issue 1-2: The New Economy: Implications and Viability , 2002 , pp. 221 - 237
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2002 

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Footnotes

*

We thank two anonymous referees for very useful comments and suggestions. This paper was presented at the congress ‘The New Economy : Implications and Viability”, Université de Metz (France), April 27-28, 2001. All remaining errors are ours.

**

Université catholique de Lille : Faculté Libre des Sciences économiques, Institut d’Economie Scientifique et de Gestion (IESEG), Labores-CNRS and Université catholique de Louvain : Département des Sciences économiques, Institut de Recherches économiques et Sociales (IRES-UCL).

***

Université catholique de Louvain : Département des Sciences économiques, Institut de Recherches économiques et Sociales (IRES-UCL). Durré’s research is supported by the Belgian government (Pôles d’Attraction inter-universitaires PAI P4/01).

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