The Asset Price Channel of Monetary Policy: Evidence from Regional Stock-Market Developments in the Successor States of Former Yugoslavia

URL SCAN: arXiv | arXiv:2605.14575v1 | The Asset Price Channel of Monetary Policy: Evidence from Regional Stock-Market Developments in the Successor States of Former Yugoslavia

FIRST LINE: "The aim of this study is to empirically investigate the existence of a sectoral asset price channel of monetary policy in the region of the six republics of former Yugoslavia."

The Dissection

This is a standard empirical economics paper in the tradition of New Keynesian monetary transmission research. It asks whether monetary policy shocks produce detectable responses in regional stock indices across former Yugoslav republics, segmented by sector (finance, telecom, manufacturing, electricity). It uses panel VAR and PMG estimation on sector-level data. The finding: the asset price channel is operative for finance and telecom, absent for manufacturing and electricity.

The paper is technically competent within its own paradigm. It is also, from a structural perspective, a document from a dying epistemic tradition solving a problem that no longer exists in its original form.

The Core Fallacy

The paper assumes monetary policy transmission through asset prices is a live policy question worthy of investigation. This assumption is defensible within macroeconomics as a discipline—but only if you ignore the DT structural picture entirely.

Under the Discontinuity Thesis, the relevant question isn't "does monetary policy move asset prices?" It's "why does this matter when the transmission mechanism itself is becoming vestigial?" The asset price channel of monetary policy presupposes:
1. Capital markets that allocate productive resources efficiently.
2. A labor market where monetary stimulus translates into employment, wages, and consumption.
3. A financial system where asset price movements meaningfully affect household balance sheets and thus aggregate demand.

All three presuppositions are under structural stress as AI automates cognitive labor, severs the employment-wage-consumption circuit, and creates asset classes (AI capital) whose valuation dynamics are increasingly decoupled from monetary policy transmission.

The paper treats the monetary transmission mechanism as a black box to be estimated. It never asks whether the box itself is being dismantled.

Hidden Assumptions

1. Sectoral stock indices represent economically meaningful aggregations. They do, in a world where equity markets allocate capital to productive enterprises. In a world where AI capital accumulation is increasingly internal to inference infrastructure and model training—not listed on Balkan stock exchanges—this assumption holds only in the marginal cases the paper identifies (finance, telecom) where multinational corporate networks still tie local markets to global capital flows.

2. Regional stock market fragmentation is a problem to be solved. The paper treats the absence of a unified regional exchange as an inefficiency to be corrected through cooperation. But fragmentation may be an accurate reflection of productive reality: these economies are not generating capital-intensive sectors worthy of deep equity markets. The "enhanced regional cooperation" the authors call for is a coordination project built on the assumption that these markets will eventually be worth coordinating. The DT lens suggests the productive base that would make that worthwhile is shrinking, not growing.

3. Monetary policy remains a primary tool for macroeconomic stabilization in these economies. The authors are testing a specific transmission channel, not questioning the transmission infrastructure. But the infrastructure assumption—built on the post-WWII settlement of managed capitalism—is precisely what the DT framework identifies as terminal.

4. The Yugoslav successor states are interesting as a "natural experiment" in institutional divergence. The paper uses the regional heterogeneity to identify monetary policy effects. But this framing implicitly treats institutional divergence as a quasi-experimental variation on a stable underlying system. The DT framework would note that the system itself is unstable, making the divergence less of an identification opportunity and more of a preview of what fragmentation looks like when the integrating logic of global capitalism itself weakens.

Social Function

This is prestige signaling within the disciplinary mainstream. It is a competent graduate student exercise that will be cited by people doing similar VAR work in other regional contexts, appreciated by monetary policy researchers who share its assumptions, and utterly invisible to anyone actually making decisions about structural economic transformation.

It performs the function of normal science: it adds a data point, refines an estimate, extends a methodology to a new context. It does not challenge the paradigm. It cannot challenge the paradigm—it is built entirely within it.

The Verdict

The paper is empirically sound within its paradigm and the regional context is genuinely interesting for comparative monetary economics. But it is operating on a structure that the DT framework identifies as mathematically constrained toward obsolescence. Monetary policy transmission, asset price channels, regional stock market integration—these are features of an economic architecture that requires mass employment and productive labor participation to function as intended. The paper documents these features with technical rigor and finds them partially operative in a peripheral regional economy. It never asks the structural question: what happens to monetary policy transmission when the productive economy it transmits to is being systematically hollowed out by AI-driven automation?

The answer, under the DT framework, is that the asset price channel becomes a mechanism for sovereign and servitor wealth consolidation, not a transmission belt for macroeconomic stabilization. The Balkan stock markets the paper studies are small, fragmented, and largely irrelevant to the actual architecture of AI capital accumulation. The paper is measuring the pulse of a patient whose fundamental diagnosis is terminal—and whose treating physicians are still arguing about which VAR specification best captures the fever curve.