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Monetary policy and asset prices in an open economy

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  • Ida, Daisuke
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    Abstract

    This paper examines whether central banks should respond to asset price fluctuations in a two-country sticky price model. We compare a monetary policy rule that targets both domestic asset prices and foreign asset prices with several alternative monetary policy rules. This paper shows that this policy rule can produce preferable outcomes because the domestic central bank incorporates important information that both domestic and foreign asset prices possess into its monetary policy. Our model suggests that central banks should consider both domestic and foreign asset prices in a two country framework with asset price fluctuations.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1062940810000422
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    Bibliographic Info

    Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

    Volume (Year): 22 (2011)
    Issue (Month): 2 (August)
    Pages: 102-117

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    Handle: RePEc:eee:ecofin:v:22:y:2011:i:2:p:102-117

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    Web page: http://www.elsevier.com/locate/inca/620163

    Related research

    Keywords: Asset prices Monetary policy Two-country model;

    References

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    1. Alexandros Kontikas & Alberto Montagnoli, 2004. "Optimal Monetary Policy and Asset Price Misalignments," Money Macro and Finance (MMF) Research Group Conference 2004 80, Money Macro and Finance Research Group.
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    Cited by:
    1. Machado, Vicente da Gama, 2013. "Monetary policy rules, asset prices and adaptive learning," Journal of Financial Stability, Elsevier, vol. 9(3), pages 251-258.
    2. Vicente da Gama Machado, 2012. "Monetary Policy, Asset Prices and Adaptive Learning," Working Papers Series 274, Central Bank of Brazil, Research Department.
    3. Ida, Daisuke, 2013. "Tobin's Q channel and monetary policy rules under incomplete exchange rate pass-through," Economic Modelling, Elsevier, vol. 33(C), pages 733-740.

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