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Central Banks: the First Pillar of the Investment Cycle

The essential

  • The origin and role of central banks

- How did central banks develop?

- Current debates on the evolving role of central banks

  • Monetary policy

- From monetary targeting to inflation targeting

- The main tools of monetary policy

  • Central banks and the investment cycle

- The evolution of US key interest rates since the creation of the Fed

- The influence of monetary policy on the asset markets

- Performance of the equity market in terms of short and long cycles

  • Conclusion

 

 

 

 

Amundi Discussion Papers Series - November 2015

This is the third in a series of Discussion Papers outlining our market analysis framework. It stands at the crossroads between the first two: “Long Cycles and the Asset Markets” and “The Short Investment Cycle: Our Roadmap”.

In this Discussion Paper, we will explore the influence of central banks and demonstrate how long cycles impact short cycles through monetary policy.

Central banks are the key to understanding the investment cycle. Banks are not like other enterprises. They play a pivotal role in the economy, administering payment and financing systems. As their name implies, central banks are at the centre of the banking system. Nowadays, they fulfil three roles. Firstly, they steer monetary policy (often independently of governments) and act to achieve
and maintain financial stability. In most major countries, they also supervise the banking system. Finally, they act as lender of last resort.

Following the “stagflation” of the 1970s, our economies embarked on a vast programme of deregulation, financialisation and globalisation. Central banks were propelled to the forefront, tasked with managing crises and keeping our economies running. The most prominent of these, the central banking system of the United States—the Fed—evolved into an essential economic guide for investors.
First, we will examine the origins of central banks and the evolution of their role since their creation. We will also see how they intervene in the economy. Then, we will demonstrate how they influence the markets, focusing our attention on short cycles within long cycles. This will enable us to delve deeper into the matter than in the previous Discussion Papers.

MIJOT Eric , Head of Equity Strategy, Deputy Head of Strategy Research

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Central Banks: the First Pillar of the Investment Cycle
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