Central banks and asset prices: the role of the interest rate in volatility correction in the Romanian case

Abstract

The speculative bubbles of asset prices, and especially their burst out, have a negative impact on the financial stability and also on the prices stability – the main objectives of central banks. As a consequence, a more attentive observation of the evolution of these prices is necessary. In the economic literature, opinions differ, oscillating between a total ignorance of the evolution of asset prices by the central banks and the extreme solution, consisting in considering them as the final purpose of the monetary policy. If the opportunity of the intervention is intensely analyzed, the debates related to the instruments of the intervention, differentiated depending on the nature of the assets, are almost inexistent. In this study, we intend to analyze these aspects and also to highlight the importance of dealing with the volatility of asset prices in the context of the development of the financial and real estate markets in Romania. We show that the interest rate instrument has a reduced importance in asset prices volatility correction.asset prices, central banks, interest rate