Commodity prices, financial markets and world imcome: a structural rational expectations model

1990 ◽  
Vol 22 (4) ◽  
pp. 509-527 ◽  
Author(s):  
Prathap Ramanujam ◽  
David Vines
Keyword(s):  
Financial Markets ◽  
Rational Expectations ◽  
Commodity Prices

scholarly journals A SUNSPOT-BASED THEORY OF UNCONVENTIONAL MONETARY POLICY

2020 ◽  
pp. 1-32
Author(s):  
Roger E. A. Farmer ◽  
Pawel Zabczyk
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Rational Expectations ◽  
Balance Sheet ◽  
Unconventional Monetary Policy ◽  
Efficient Outcome ◽  
Complete Set ◽  
Pareto Efficient ◽  
Financial Securities

This paper is about the effectiveness of qualitative easing, a form of unconventional monetary policy that changes the risk composition of the central bank balance sheet. We construct a general equilibrium model where agents have rational expectations, and there is a complete set of financial securities, but where some agents are unable to participate in financial markets. We show that a change in the risk composition of the central bank’s balance sheet affects equilibrium asset prices and economic activity. We prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is self-financing and leads to a Pareto efficient outcome.

Commodities rout will fuel EM concerns and volatility

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Emerging Market ◽  
Commodity Prices ◽  
Content Type ◽  
Bear Market ◽  
Political Crises ◽  
Downward Pressure ◽  
Advanced Economies ◽  
Country Specific

Significance This drop has taken oil into its second bear market in the space of just over a year amid a broader rout in the prices of commodities, notably copper and gold. The commodity sell-off is fuelled by mounting concerns over the economy and financial markets of China, the world's top crude importer and its largest energy user. The sell-off is exacerbated by fears over the fallout from a US interest rates rise, which could come as early as September. Country-specific risks are weighing on emerging market (EM) assets, notably the currencies of large commodity exporters such as Brazil and Russia. Impacts The sharp fall in commodity prices will exert further downward pressure on inflation in both emerging and advanced economies. Re-emerging disinflationary trends will bode ill for the ECB efforts to boost inflation in the euro-area. The commodity sell-off will exacerbate economic and political crises in Brazil and Russia. The EM currencies fall is forcing many central banks to signal an end to monetary easing or to tighten policy.

Government Borrowing and Financial Markets

1985 ◽  
Vol 113 ◽  
pp. 89-97
Author(s):  
Alan Budd ◽  
Geoffrey Dicks ◽  
Giles Keating
Keyword(s):  
Fiscal Policy ◽  
Financial Markets ◽  
Rational Expectations ◽  
List Type ◽  
Financial Assets ◽  
The United Kingdom ◽  
Long Run ◽  
Income Ratio ◽  
Recent Developments

This paper considers two questions related to fiscal and monetary poticy in the United Kingdom. The questions are as follows: (i) How do shocks to the economy affect monetary growth?(ii) What effects do changes in the debt/income ratio have on the returns to financial assets?The first question has been previously in relation to the LBS model. The second question has become relevant now that attention is being directed to the possible long-run constraints on fiscal policy. We take the opportunity to study question (i) in response to recent developments of the LBS model. The most significant developments are firstly the incorporation of a model of the financial sector in the LBS model and secondly the ability to incorporate rational expectations into the determination of asset prices in financial markets.

The Equilibrium Consequences of Indexing

2021 ◽  
Author(s):  
Philip Bond ◽  
Diego García
Keyword(s):  
Financial Markets ◽  
Rational Expectations ◽  
Market Timing ◽  
Relative Price ◽  
Stock Selection ◽  
Price Efficiency ◽  
Benchmark Model ◽  
Informed Traders

Abstract We develop a benchmark model to study the equilibrium consequences of indexing in a standard rational expectations setting. Individuals incur costs to participate in financial markets, and these costs are lower for individuals who restrict themselves to indexing. A decline in indexing costs directly increases the prevalence of indexing, thereby reducing the price efficiency of the index and augmenting relative price efficiency. In equilibrium, these changes in price efficiency in turn further increase indexing, and raise the welfare of uninformed traders. For well-informed traders, the share of trading gains stemming from market timing increases relative to stock selection trades.

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