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Author : Jong Chil Son
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (14 download)
Download or read book Essays on monetary policy and asset prices written by Jong Chil Son and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Linyan Zhu
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Download or read book Essays on Monetary Policy and Asset Prices written by Linyan Zhu and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on monetary policy and asset prices. The first chapter proposes a novel methodology to disentangle in real-time the signaling effect of a Fed announcement from exogenous monetary shocks. The method relies on the different ways monetary news and non-monetary news change the short end of the yield curve at high frequency, with the latter informed by market responses to macroeconomic data releases. The estimated revelation of Fed information is strongly correlated with the difference between market forecasts and the Fed's own forecasts. The policy shock is found to have a bigger effect on the economy than suggested using an instrument without adjustment for the signaling effect. The second chapter studies the structural forces driving the financial market responses to data releases and Fed announcements. I estimate a coherent, realistic framework that prices Treasury bonds based on macroeconomic fundamentals. The framework explicitly recognizes agents' information frictions in regard to contemporaneous aggregate outcomes, successfully matches the market responses to macroeconomic events and sheds light on the nature of news learned by investors at various events. The third chapter proposes a state-space approach to decomposing a stock's idiosyncratic volatility into a common component and an idiosyncratic one. The measure of the common idiosyncratic volatility is persistent at the daily frequency. It accounts for idiosyncratic volatilities in sample better than GARCH(1,1) and a principal component approach. It also forecasts the future levels of idiosyncratic volatilities better than GARCH(1,1) in the medium- to long-run. I assess its pricing implication in the cross section of stock returns.
Author : Alain Durré
Publisher : Presses univ. de Louvain
ISBN 13 : 2930344296
Total Pages : 188 pages
Book Rating : 4.9/5 (33 download)
Download or read book Essays on the Interaction between Monetary Policy and Financial Markets written by Alain Durré and published by Presses univ. de Louvain. This book was released on 2003 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite the consequences of financial bubbles on economic activity, it is still an open question to what extent the monetary policy should react to sharp fluctuations of equity prices. This dissertation attempts to contribute to the debate with some theoretical and empirical analyses of the relationship between monetary policy and financial markets. Chapter 1 incorporates the effect of real equity prices on aggregate demand in a forward-looking expectations neo-Keynesian model. This effect arises either from a wealth effect or from a change in consumers' confidence. The objective function of monetary authorities depends on the output gap and the deviation of expected inflation from the target. A numerical simulation, based on US data, illustrates the quantitative importance of the financial market channel for various exogenous shocks. In Chapter 2, the variation of equity prices enters explicitly in the loss function of the monetary authorities while, at the same time, it affects aggregate demand. This modifies the optimal monetary policy by increasing the volatility of the nominal interest rate. Chapter 3 examines how the launch of the European single currency has affected expectations on future monetary policy by comparing the econometric results of a co-integrated VAR model on pre- and post- January 1999 data. Chapter 4 deals with diverse methodological issues related to the estimation of the Taylor rule, which represents Central Bank decisions by a single and stable function. Several interesting results emerge from the modelling of the Fed funds rate over the period 1987-2002. In particular, assuming a discontinuous and asymmetric response of the Federal Reserve to fluctuations of equity prices, corrects the apparent instability of the rule.
Author : Seungduck Lee
Publisher :
ISBN 13 : 9780355150650
Total Pages : pages
Book Rating : 4.1/5 (56 download)
Download or read book Essays on Money, Asset Prices and Liquidity Premia written by Seungduck Lee and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes the determinants of asset prices and the effect of monetary policy on not only asset prices, but also on other macroeconomic outcomes such as asset market trade volume and welfare in an environment with search frictions. The analysis in such an environment helps to examine an important component of determining asset prices: liquidity, which is assets' ability to facilitate transactions. Hence, the dissertation particularly examines the effect of monetary policy on asset prices that the traditional asset pricing models without search frictions may be missing, and also explain some phenomena which are often considered abnormal in macroeconomics and international macroeconomics such as negative nominal yields and the Uncovered Interest Parity puzzle. The dissertation consists of three stand-alone papers and I provide their abstracts as follows. The first chapter is "Money, Asset Prices and the Liquidity Premium". This paper examines the effect of monetary policy on the market value of the liquidity services that financial assets provide, known as the liquidity premium. Money supply and nominal interest rates have positive effects on the liquidity premium, but asset supply has a negative effect. This implies that liquid financial assets aresubstantive substitutes for money, and that the opportunity cost of holding money plays a key role in explaining variation in the liquidity premium and thus in asset prices. The higher cost of holding money due to higher money growth rates leads to a higher liquidity premium. My empirical analysis with U.S. Treasury data over the period from 1946 and 2008 confirms the theoretical predictions. The theory also suggests that the liquidity properties of assets can cause negative nominal yields when the cost of holding money is low and liquid assets are scarce. I present empirical findings in the U.S. and Switzerland to support this prediction. The second chapter is a joint paper with Kuk Mo Jung, titled "A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle". In this paper, a new monetary theory is set out to resolve the "Uncovered Interest Parity (UIP)" Puzzle. It explores the possibility that liquidity properties of money and nominal bonds can account for the puzzle. A key concept in our model is that nominal bondscarry liquidity premia due to their medium of exchange role as either collateral or a means of payment. In this framework, no-arbitrage ensures a positive comovement of real return on money and nominal bonds. Thus, when inflation in one country becomes relatively lower, i.e., real return on this currency is relatively higher, its nominal bonds should also yield higher real return. We show that their nominal returns can also become higher under the economic environment where collateral pledgeability and/or liquidity of nominal bonds and/or collateralized credit based transactions are relatively bigger. Since a currency with lower inflation is expected to appreciate, the high interest currency does indeed appreciate in this case, i.e., the UIP puzzle is no longer an anomaly in our model. Our liquidity based theory can in fact help understanding many empirical observations that risk based explanations find difficult to reconcile with. The third chapter is joint work with Athanasios Geromichalos, Jiwon Lee, and Keita Oikawa, titled "Over-the-Counter Trade and the Value of Assets as Collateral" and was published in Economic Theory in 2016. We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually benecial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valuation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Garleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter market characterized by search and bargaining frictions. We study how the asset's property to serve as collateral affects its equilibrium price, and how the asset price and the economy's welfare are affected by the degree of liquidity in the secondary asset market.
Author : John Cong Zhou
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (995 download)
Download or read book Essays on Asset Prices and Macroeconomic News Announcements written by John Cong Zhou and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation is composed of three chapters that are unified by their exploration of asset prices and macroeconomic news announcements. With respect to asset prices, my main focus is on the price discovery process: how do asset prices reveal information relevant for asset fundamentals? Through my research, I provide new answers to this question. My work gets at core issues in asset pricing: whether financial markets are informationally efficient; why some assets earn unconditionally high premia; and how the sensitivity of prices to information varies over time and across assets. Specifically, chapter one shows evidence that sophisticated traders with an informational advantage inefficiently impound their edge into the aggregate U.S. stock market and U.S. Treasury bonds. In chapter two, I explore a model in which investors are averse to ambiguity (Knightian uncertainty) to explain why the equity premium is concentrated around specific events. Finally, chapter three investigates how the Federal Reserve's zero lower bound affects the response of asset prices, in particular interest rates, to information. Each of the three chapters explores the price discovery process using the unique setting of U.S. macroeconomic news announcements, which are made by government agencies and private-sector organizations and cover macroeconomic data on inflation, output, and unemployment. Analyzing financial markets in this setting deepens our understanding of how asset prices reflect information about macroeconomic fundamentals. At the same time, the results have macroeconomic implications; for example, the assumptions of monetary policy models in theory and the effectiveness of unconventional monetary policy in practice.
Author : Venoo Kakar
Publisher :
ISBN 13 : 9781303507083
Total Pages : 142 pages
Book Rating : 4.5/5 (7 download)
Download or read book Essays on Monetary Policy and Inflation in the United States written by Venoo Kakar and published by . This book was released on 2013 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contributes to two areas of Macroeconomics: (1) welfare effects of inflation and (2) monetary policy and asset prices. The first chapter focuses on examining the redistributional effects of inflation in the United States in a cash-in-advance economy framework. Most literature on the welfare effects of inflation has largely focused on the aggregate welfare effects of inflation without much assessment about it's redistributional effects. The first chapter examines, quantitatively, how different income brackets in the U.S. would be impacted in terms of consumption and asset positions if long-run inflation were to rise
Author : Ciaran James Rogers
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (133 download)
Download or read book Essays in Monetary Policy and Household Finance written by Ciaran James Rogers and published by . This book was released on 2022 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays that examine the effects of different monetary policy tools on the the real economy and asset prices. In Chapter 1, I study the transmission of central bank asset purchases into the real economy of the Euro Area, while Chapter 2 instead focuses on the effect of more conventional interest rate policy on asset prices and risk premia. Chapter 3 demonstrates how the pass-through of more conventional policy rate changes depends on the monetary policy framework of the central bank. In the first chapter, I study the role of local banking systems in the propagation of ECB Quantitative Easing (QE) programs. I firstly document that local deposit markets are fragmented across country lines, but the assets held by banks backing the deposits are in more integrated markets. I then consider a multi-country New Keynesian model with heterogeneous banking sectors but common monetary policy. All banks can access collateral from the same union-wide asset market, using them to back liquid deposit liabilities that are issued locally. QE has real effects if it increases the quantity or quality of collateral available to the banking sector. I find that QE has a powerful effect across the currency union, raising output and inflation by 62bps and 60bps, respectively. The pass-through is very similar across countries, despite fragmented deposit markets, as all banks face the same reduction in the cost of collateral from the union-wide asset market. The overall impact increases significantly if the beginning of QE coincides with adjusting the policy rate rule to be a weaker counteracting force by making it less responsive to inflation. In the second chapter, co-authored with Matteo Leombroni, we study the role of the household portfolio rebalancing channel for the aggregate and redistributive effects of monetary policy. The transmission of monetary policy works not only through the usual income and substitution motives, but also through an endogenous portfolio rebalancing effect that generates changes in equilibrium asset prices and a consequent wealth effect on consumption. We introduce a heterogeneous household life-cycle model with multiple assets and combine it with an incomplete markets asset pricing framework. We model monetary policy shocks as a reduction in the expected return on safe assets. In equilibrium, the reduction in bonds investment prompts a portfolio rebalancing toward riskier assets, inducing an increase in asset prices and wealth. We find that, absent wealth effects, older cohorts reduce consumption as they face lower expected asset returns, while younger cohorts raise consumption as they can borrow more cheaply. This heterogeneity remains with wealth effects, but responses turn positive for all cohorts. Asset risk premia rise because the risk compensation effect (need for more returns to hold more risk) dominates the risk tolerance effect (positive wealth effect on risky asset holdings). Shutting down household heterogeneity flips the risk premia responses negative. In the third chapter, co-authored with Monika Piazzesi and Martin Schneider, we study a New Keynesian model with a banking system. The central bank targets the interest rate on short safe bonds that are held by banks to back inside money and hence earn convenience yield for their safety or liquidity. Central bank operating procedures matter. In a floor system, the reserve rate and the quantity of reserves are independent policy tools that affect banks' cost of safety. In a corridor system, increasing the interbank rate by making reserves scarce increases banks' cost of liquidity and generates strong pass-through to other rates of return, output and inflation. In either system, policy rules that do not respond aggressively to inflation -- such as an interest rate peg -- need not lead to self-fulfilling fluctuations. The stabilizing effect from an endogenous convenience yield is stronger when there are more nominal rigidities in bank balance sheets.
Author : 張天惠
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (858 download)
Download or read book Three Essays on Asset Prices, Credit Risk, and Monetary Policy written by 張天惠 and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Xueli Cao (Ph.D. in Economics)
Publisher :
ISBN 13 :
Total Pages : 129 pages
Book Rating : 4.:/5 (19 download)
Download or read book Three Essays on Monetary and Financial Economics written by Xueli Cao (Ph.D. in Economics) and published by . This book was released on 2018 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt: This three-chapter dissertation focuses on the research topics in Monetary and Financial Economics. The first paper examines the time-varying impact of U.S. monetary policy shocks on asset prices. The monetary policy shock is identified using robust sign restrictions in a time-varying factor-augmented VAR (TVP-FAVAR). Time variations are found in both the variance of policy shocks and transmission to asset prices. The relative importance of monetary policy shocks rise significantly over time although the shock size of monetary policy shocks has declined in the sample. In terms of transmission mechanism, asset prices are more responsive in the latter part of the sample (post-1984Q1) when normalizing the shock size. We also document the effects of monetary policy on asset prices are significantly larger for recessionary periods. Finally, the paper also identifies the role of demand and supply shocks in determining the movements of asset prices. In the second paper, I investigate the spillover effects between the Growth Enterprises Market (GEM) and the Main Board stock market in China. Specifically, a multivariate GARCH model and a multivariate GARCH-in-mean model are estimated using daily data for the GEM Board and the Main Board over period June 1, 2010 - December 31, 2016. The results indicate that the Main Board leads the GEM Board in the first order and there is no mean overflow from the GEM Board to the Main Board. However, the quantile dependence, measured by cross-quantilogram, shows that there are asymmetry distributional spillover effects from the GEM Board to the Main Board. From the point of view of volatility, the GEM Board has effects on the Main Board, and it lasts a period of time in the future. The volatility of the GEM also affects the return of the Main Board negatively. Lastly, the GEM has a one-way effect on the Main Board in illiquidity. In the third paper, we document the effects of institutional investors on the qualitative information disclosure of earnings conference calls. Utilizing conference call and institutional ownership data between 2005 and 2016, we find that aggregate institutional ownership dampens conference call tone. The effects of institutional investors on tone are causal based on results from indexed firms. Consistent with hypotheses regarding investors horizon, short-term institutional investors are associated with greater conference call tone, as well as potentially opportunistic trading, while long-term investors decrease tone. Market participants can generally disentangle the impact of institutional investors on tone based on investor type.
Author : Emmanuil Noikokyris
Publisher :
ISBN 13 :
Total Pages : 356 pages
Book Rating : 4.:/5 (656 download)
Download or read book Essays on Asset Pricing and Monetary Policy written by Emmanuil Noikokyris and published by . This book was released on 2010 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : M. M. G. Fase
Publisher : Edward Elgar Publishing
ISBN 13 :
Total Pages : 328 pages
Book Rating : 4.F/5 ( download)
Download or read book On Interest Rates and Asset Prices in Europe written by M. M. G. Fase and published by Edward Elgar Publishing. This book was released on 1999 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: Presenting 25 years of empirical research on interest rates and a variety of asset prices, this text aims to deepen understanding of asset price inflation. It includes an analysis of the measurement of interest rates, with case studies from The Netherlands, Belgium and EMU, and emphasizes statistical measurement and the attempt to understand interest rate behaviour through statistical estimation. The text also includes an examination of historical interest rate development in the long run, both theoretically and empirically. The behaviour of bonds, stocks, and investment in art are analyzed, as well as the factors indispensable for a monetary strategy designed to target inflation.
Author : Frederik Schröder
Publisher : GRIN Verlag
ISBN 13 : 3656131406
Total Pages : 13 pages
Book Rating : 4.6/5 (561 download)
Download or read book To what extent should monetary policy take asset prices into account? written by Frederik Schröder and published by GRIN Verlag. This book was released on 2012-02-15 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2009 in the subject Economics - Macro-economics, general, grade: A, University of Otago, language: English, abstract: Monetary policy makers set policy in order to minimize deviations of actual inflation from some predetermined level while paying attention to deviations of output from potential. The extent to which asset prices should be taken into account, when setting policy aimed at achieving the desired goal, has moved into the focus of academic debate, as low and stable consumer price inflation (at least in OECD countries) has been achieved. There are several distinct possibilities regarding how asset prices can be incorporated when determining the interest rate (or the money supply). Two extreme approaches that can be taken are specifically targeting asset prices and “pricking asset bubbles” upon their emergence. These views however, have been rejected with sufficient consensus (Isssing, 2009). More moderate alternatives are the “leaning against the wind” approach and the orthodox view. “Leaning against the wind” implies tolerating a certain deviation from price stability while simultaneously attempting to prevent the emergence of a bubble (Kohn, 2006). The orthodox view says that asset prices should be ignored beyond their impact on consumer price inflation. When strong informational requirements and specific conditions are met, however, an argument for the “leaning against the wind” approach can be made. The probability that a bubble is correctly identified must be high, the future growth of the bubble needs to be sensitive to interest rates and the economic inefficiencies arising from a burst of the bubble should rise with the size of the bubble (Trichet, 2005). However, if these conditions are not met, central banks are likely to achieve higher macroeconomic stability by following the orthodox approach.
Author : Abeba Siraj Mussa
Publisher :
ISBN 13 :
Total Pages : 144 pages
Book Rating : 4.:/5 (742 download)
Download or read book Three Essays on Financial Markets and Monetary Policy written by Abeba Siraj Mussa and published by . This book was released on 2011 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global financial crisis triggered by fallout form the sub-prime mortgage market in the U.S. has led economists to focus attention on the role of monetary policy in the crisis. The question of how monetary policy affects the financial sector is the key to the current debate over the role financial stability should play in the monetary policy decisions. As a contribution to this debate, my dissertation examines the link between monetary policy and three main financial sectors-the banking sector, the stock market, anf the housing market. The first essay examines whether the Federal Open Market Committee (FOMC) responded to changes in equity prices during the period 1966-2009. I distinguish the indirect response, where the FOMC reacts to equity prices only when equity prices affect its target variables, from the direct response, where the FOMC reacts to equity prices directly regardless of their effects on the target variables. In addition, the paper models the Federal Reserve's reaction function as state dependent, hypothesizing that the FOMC may respond to changes in asset prices asymmetrically during different states of the economy. The results show that the FOMC did respond directly to equity price changes when asset prices were falling. During non-bust periods, the FOMC did not respond directly to equity prices. It used information on equity prices to forecast target variables. The second essay investigates the effect of expansionary and contractionary monetary policy on the risk taking behavior of low-capital and high-capital banks. Using quarterly data on federally insured banks spanning the period from 1991 to 2010, the paper shows that expansionary policy caused high capital banks to take more risk. Capital constrained banks were not significantly affected by expansionary monetary policy. Contractionary monetary policy, however, is not effective in affecting the risk-taking behavior of both capital-constrained and unconstrained banks. The paper, therefore, confirms the hypothesis that expansionary policy is more effective in encouraging capital unconstrained banks to invest more in risky assets. The third essay examines the role of monetary policy on housing bubbles in the last three decades. A spatial dynamic model is used to explicity account for spatial cross-section dependence in the data. Using quarterly panel data on 48 contiguous U.S. states and the District of Columbia, the paper discovers that the housing bubbles across the U.S. are mainly driven by the local or state specific factors during the period 1976-2000. However, the prolonged low interest rate since the 2001 recession contributed to the run-up in house prices acrsss states.
Author : Matteo Leombroni
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (138 download)
Download or read book Essays on Monetary Policy and Financial Markets written by Matteo Leombroni and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis studies the interaction of monetary policy and financial markets. The thesis examines the impact of monetary policy shocks on the cross-section of bond prices (e.g., government and corporate bonds). It also analyzes how monetary policy interacts with the portfolios of financial intermediaries and households. In the first chapter, Heterogeneous Intermediaries and Bond Characteristics in the Transmission of Monetary Policy, together Federic Holm-Hadulla, we study the transmission of monetary policy to the corporate bond market. We show that corporate bond purchases by the central bank give rise to credit spread shocks, whereas government bond purchases mainly cause term spread shocks. The yields of bonds held by different intermediaries respond heterogeneously to the two shocks because intermediaries systematically select different types of bonds. We explain these findings through the lens of a model of the fixed-income market with multiple risk factors. Insurance companies and pension funds select into assets with high interest-rate risk exposure to match their long-duration liabilities. The mutual fund sector instead absorbs securities that carry credit risk. Different policy tools affect the market prices of risk factors differentially, thereby redistributing risks across intermediary sectors and ultimately across the households investing in them. In the second chapter, Central Bank Communication and the Yield Curve, with Andrea Vedolin, Gyuri Venter, and Paul Whelan, we study the interaction between monetary policy and sovereign bonds in the Euro area. We argue that monetary policy in the form of central bank communication can shape long-term interest rates by changing risk premia. Using high-frequency movements of default-free rates and equity, we show that monetary policy communications by the ECB on regular announcement days led to a significant yield spread between peripheral and core countries during the European sovereign debt crisis by increasing credit risk premia. We also show that central bank communication has a powerful impact on the yield curve outside of regular monetary policy days. In the third chapter, Household Portfolios, Monetary Policy, and Asset Prices, together with Ciaran Rogers, we examine the role of the household portfolio rebalancing channel for the aggregate and redistributive effects of monetary policy. The transmission of monetary policy works not only through regular income and substitution motives but also through an endogenous portfolio rebalancing effect that generates changes in equilibrium asset prices and a subsequent wealth effect on consumption.
Author : Giuseppe Fontana
Publisher : Springer
ISBN 13 : 0230285589
Total Pages : 363 pages
Book Rating : 4.2/5 (32 download)
Download or read book Macroeconomics, Finance and Money written by Giuseppe Fontana and published by Springer. This book was released on 2010-03-11 with total page 363 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume focuses on current issues of debate in the area of modern macroeconomics and money, written from (a broadly interpreted) post Keynesian perspective. The papers connect with Philip Arestis' contributions to macroeconomics and money, and pay tribute to his distinguished career.
Author : David G. Dickinson
Publisher : Psychology Press
ISBN 13 : 0415251354
Total Pages : 305 pages
Book Rating : 4.4/5 (152 download)
Download or read book Monetary Policy, Capital Flows and Exchange Rates written by David G. Dickinson and published by Psychology Press. This book was released on 2002 with total page 305 pages. Available in PDF, EPUB and Kindle. Book excerpt: Max Fry was known internationally for his research on international and domestic financial issues. This book draws together contributions from a range of academic and policy-making friends and colleagues.
Author : Anastasios G Malliaris
Publisher : World Scientific
ISBN 13 : 9814480045
Total Pages : 373 pages
Book Rating : 4.8/5 (144 download)
Download or read book Economic Uncertainty, Instabilities And Asset Bubbles: Selected Essays written by Anastasios G Malliaris and published by World Scientific. This book was released on 2005-10-03 with total page 373 pages. Available in PDF, EPUB and Kindle. Book excerpt: The compendium of papers in this volume focuses on aspects of economic uncertainty, financial instabilities and asset bubbles.Economic uncertainty is modeled in continuous time using the mathematical techniques of stochastic calculus. A detailed treatment of important topics is provided, including the existence and uniqueness of asymptotic economic growth, the modeling of inflation and interest rates, the decomposition of inflation and its volatility, and the extension of the quantity theory of money to allow for randomness.The reader is also introduced to the methods of chaotic dynamics, and this methodology is applied to asset pricing, the European equity markets, and the multi-fractality in foreign currency markets.Since the techniques of stochastic calculus and chaotic dynamics do not readily accommodate the presence of stochastic bubbles, several papers discuss in depth the presence of financial bubbles in asset prices, and econometric work is performed to link such bubbles to monetary policy.Finally, since bubbles often burst rather than deflate slowly, the last section of the book studies the crash of October 1987 as well as other crashes of national equity markets due to the Persian gulf crisis.
