The Stock Market, Monetary Policy, And Economic Development

Free registration required

Executive Summary

In this paper, the authors examine the impact of financial market development on capital accumulation and inflation. In particular, they explore this issue in a setting in which banks provide risk pooling services. Furthermore, money overcomes incomplete information to facilitate transactions between individuals. In contrast to previous work, they incorporate a market for equity by allowing individuals to trade capital across generations. Interestingly, they find that the quantitative impact of the stock market may be indeterminate - the economy may respond with significant gains in capital accumulation or relatively little. Consequently, it is not clear how much financial development will drive down inflation in the long-run.

  • Format: PDF
  • Size: 727.4 KB