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Monetary Policy and Asset Price Gap Signal Technology in a New Keynesian Framework

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  • Mislin Alexander

    (Federal Ministry of Finance, Wilhelmstrasse 97, 10117Berlin, Germany)

Abstract

This article develops a New Keynesian model in which the inflation rate depends on the present value of future output gaps and asset prices gaps. The latter follows a price adjustment process. These asset price gaps are driven by ‛asset price gap signal technology’, a measure of exponentially distributed asset price gaps with a signalling mechanism. Within a dynamic stochastic optimisation approach, I identify a policy rule for the central bank in which the asset price gap the difference between the actual asset price at time t to its fundamental value plays a crucial role in determining the nominal rate of interest.

Suggested Citation

  • Mislin Alexander, 2021. "Monetary Policy and Asset Price Gap Signal Technology in a New Keynesian Framework," The Economists' Voice, De Gruyter, vol. 18(1), pages 31-45, December.
    • Handle: RePEc:bpj:evoice:v:18:y:2021:i:1:p:31-45:n:6
    DOI: 10.1515/ev-2021-0003
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    More about this item

    Keywords

    asset price gap; monetary policy; policy rule;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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