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Monetary policy, stock prices, and consumption externalities

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  • Airaudo, Marco
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    Abstract

    We study interest rate rules responding to stock prices in a sticky-price sticky-wage New-Keynesian framework subject to consumption externalities. For given wage rigidity, such rules are beneficial to equilibrium determinacy if households’ preferences feature sufficiently strong keeping-up-with-the-Joneses externalities.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 120 (2013)
    Issue (Month): 3 ()
    Pages: 537-541

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    Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:537-541

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    Web page: http://www.elsevier.com/locate/ecolet

    Related research

    Keywords: Consumption externalities; New-Keynesian model; Stock prices; Monetary policy; Determinacy;

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    17. Krause, M.U. & Lubik, T.A., 2003. "The (Ir)relevance of Real Wage Rigidity in the New Keynesian Model with Search Frictions," Discussion Paper, Tilburg University, Center for Economic Research 2003-113, Tilburg University, Center for Economic Research.
    18. Airaudo, Marco & Cardani, Roberta & Lansing, Kevin J., 2013. "Monetary policy and asset prices with belief-driven fluctuations," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(8), pages 1453-1478.
    19. Jürgen Maurer & André Meier, 2008. "Smooth it Like the 'Joneses'? Estimating Peer-Group Effects in Intertemporal Consumption Choice," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(527), pages 454-476, 03.
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