Yesterday I argued that the existence of the financial market does not influence the market price level; today I want to talk about if it is possible for the financial market to take certain actions to influence the market price level.
Firstly, the financial market could have different attitudes towards the demand side and the supply side; when the two sides are treated differently, their gains from the financial market will be different and their changes do not move in parallel, so the market price level will change.
Secondly, the financial market could send signals to the market that influence the market price level. The financial market also provides credit ratings and checking, and even economic forecast services, based on the services, the market price can amend according to these forecasts and estimates.
Thirdly, the financial market has its own interests, as it is operating to maximise its own profits. The financial market will try to absorb some profits from the ordinary market to pay for its contribution for the economy.
Fourthly, all individuals are taking actions to maximise their own profits. Therefore, it is possible to exist conflicts of interests in the financial market. When there is a conflict of interests, the market may behave problematically and some price changes can occur.
Overall, the existence of the financial market does not directly influence the market price level; however, as the financial market is part of the economy and some of its activities can influence the overall price level.
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