The Stock Market Channel of Monetary Policy
Abstract
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.
Type
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https://hdl.handle.net/10161/2011Collections
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Connel Fullenkamp
Professor of the Practice of Economics
Professor Fullenkamp specializes in the investigation of financial market development
and regulation of financial markets. His projects often involve the exploration of
such variables as immigrant worker remittances, economic policy, and the development
of countries. His completed papers have appeared in various leading academic journals,
including The Cato Journal, the Journal of Banking and Finance, the Review of Economic
Dynamics, and the Review of Economics and Statistics. Titles of his p
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