Monetary Policy in an Era of Capital Market Inflation

Levy Economics Institute Working Paper No. 279

15 Pages Posted: 12 Oct 1999

See all articles by Jan Toporowski

Jan Toporowski

University of London - School of Oriental and African Studies (SOAS)

Date Written: September 1999

Abstract

The theory of capital market inflation argues that the values of long-term securities markets are determined by a disequilibrium inflow of funds into those markets. The resulting over-capitalization of companies leads to increased fragility of banking and undermines monetary policy and stable relationships between short- and long-term interest rates, such as that postulated by Keynes in his theory of the speculative demand for money. Moreover, while the increased fragility of banking is an immediate effect, capital market inflation also creates an unstable Ponzi financing structure in the capital market as a whole.

JEL Classification: E52, E58

Suggested Citation

Toporowski, Jan, Monetary Policy in an Era of Capital Market Inflation (September 1999). Levy Economics Institute Working Paper No. 279, Available at SSRN: https://ssrn.com/abstract=184888 or http://dx.doi.org/10.2139/ssrn.184888

Jan Toporowski (Contact Author)

University of London - School of Oriental and African Studies (SOAS) ( email )

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