Orientation share price-determined (asset-oriented central bank policy)

Said of the policy of the Federal Reserve System in the USA. – In the U.S.A., every second household owned stocks in 2006. – However, household (consumption) spending has been shown to be very closely correlated with stock prices. – The Fed therefore regards stock prices as an intermediate target variable of monetary policy; accordingly, it must be ensured that companies have favorable profit expectations or promising growth prospects so that households unleash more demand. – The downside to this policy is that shareholders are increasingly risky in speculating on bull markets. This is because they can expect the Fed to help with interest rate cuts in a bear market. – According to calculations by the Deutsche Bundesbank, a thirty percent drop in stock prices depresses economic growth in Germany by barely 0.1 percent via private consumption. – See adjustment policy, central banking, targeting, single-digit, oil price, inflation targeting, business cycle policy, propensity to consume, marginal, luxury consumption, moral hazard, forecasting model, price level control, signaling effect, two-pillar principle.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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