Asset Price Instability and Policy Responses: The Legacy of Liberalisation

The debate about the dynamics and potential policy responses to asset inflation has intensified in recent years. Some analysts, notably Borio and Lowe, have called for 'subtle' changes to existing monetary targeting frameworks to try to deal with the problems of asset inflation and have attempted to developed indicators of financial vulnerability to aid this process. In contrast, this paper argues that the uncertainties involved in understanding financial market developments and their potential impact on the real economy are likely to remain too high to embolden policy makers. The political and institutional risks associated with policy errors are also significant. The fundamental premise that a liberalised financial system is based on 'efficient' market allocation cannot be overlooked. The corollary is that any serious attempt to stabilize financial market outcomes must involve at least a partial reversal of deregulation.

Introduction to Discounted Cash Flow Analysis and Financial Functions in Excel

The financial and economic analysis of investment projects is typically carried out using the technique of discounted cash flow (DCF) analysis. This module introduces concepts of discounting and DCF analysis for the derivation of project performance criteria such as net present value (NPV), internal rate of return (IRR) and benefit to cost (B/C) ratios. These concepts and criteria are introduced with respect to a simple example, for which calculations using MicroSoft Excel are demonstrated.