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Article: Why policymakers might care about stock market bubbles.
- Article from:
- Economic Commentary (Cleveland)
- Article date:
- May 15, 2005
- Author:
CopyrightCOPYRIGHT 2005 Federal Reserve Bank of Cleveland. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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On the face of it, it's somewhat perplexing that variations in the stock market should have effects on the macroeconomy more generally. After all, on each side of a stock market transaction is a buyer and a seller; the sale of stock by one individual corresponds to the transfer of ownership of a small piece of a firm to another individual. Following such a transaction, the firm can continue to produce the same goods and services since all the employees still work for the firm, the firm still owns the same plant and equipment, and the particular ways of utilizing these inputs are still known.
But the stock market's ups and downs can have very real, if not direct, ...