Lecturer:Zhang Bin
Discussants:Yang Ruyan Huan Guoping Xie Ya Yang Fan Sheng Hong Guan Xuefeng
 
 
Expected Asset Prices and Aggregate Demand: a Simple Framework
 
The issue of this forum is ‘Expected asset prices and aggregate demand: a simple framework’, addressed by Zhang Bin. He forms a complete picture of simultaneous equilibrium in the monetary market, risky asset market, good market and capital market in his treatise. He interpreted the volatility of liquidity in terms of money demand instead of money supply and provided feasible explanations to real Chinese economic operation.
 
Yang Ruyan recommended two assumptions be further discussed: a more clear classification of money-demand-to-supply ratio and a more cogent proof to say that   risk preference is exogenous.
 
Huang Guoping addressed four plausible improvements: first, risk-free rate may adopt interbank rates or T-bill yields instead of deposit rates. Second, the model may allow the risk measure factor such as beta as the measurement of asset risk. Third, risk prices can replace the risk preference as the explanatory factor. Fourth, the expected risky asset return may be dropped as a result of the introduction of risk measure factor and risk price factor
 
Xie Ya casted doubts on three issues: first, the exogeneity of Net Export had to be carefully measured. Second, no clear expression (mathematically or theoretically) was provided for the risky asset price in equilibrium. Third, the model didn’t take inflation into account.
 
Yang Fan appreciated the significance of allowing stock markets and real estate in macro-economic analysis. And he addressed his expectation on current trends. Meanwhile he showed no worry about inflation and much confidence in the RMB appreciation.
 
Sheng Hong suggested three issues worthy of further discussion: first, whether a definite agreeable conclusion can be drawn on the issue of expectations is in doubt. Second, expectation needed to be categorized. Third, the mutual relationship between expectation and some explanatory factors had to be measured.
 
Guan Xuefeng thought a precise definition of risky asset was needed, for the real estate and the stock are two respective risky assets.
 
Mao Yushi pointed two frameworks of asset price analyses whose application depended on the investment motivations of participants in the market. As opportunism behaviors are prevailed among most Chinese participants in asset market, non-equilibrium analysis should be adopted.
 
Zhang Shuguang thought assets should be categorized and reinforce on money demand was crucial. However, he pointed out that Zhang Bin assumed the exogeneity of many explanatory factors, which limited its applicability.