The Wealth Channel of Monetary Policy
The capital market becomes an important source of financing corporate assets. Stabilising the conditions of its fuctioning is a necessary condition for prevention of financial crises. Speculative fluctuations of share prices adversely affect the process of correct capital raising for firms. Therefore, the policy of preventing occurrence of speculative bubbles is an important element of rational allocation of capital within the economy. In Poland, changes of market equity prices influence real investment activity of companies. The stock exchange operation influences the actual economic operation. Furthermore, the changes of direction of monetary policy have a certain effect upon the changes of the level of the WIG. The wealth channel of monetary policy in Poland works. Its existence justifies the need to apply monetary policy in stabilising capital market functioning. The possible financial instruments include the changes of basic interest rates, and changes of money supply. A new function of the central bank has emerged - stabilisation of conditions of operation of the capital market. Its implementation may facilitate correct capital raising for companies and improve the level of investment within the economy. (author's abstract)
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