This paper studies whether monetary policy should respond to changes in monetary aggregates or stock market indices. Based on an empirical model of the US it presents estimates of how the inclusion of monetary aggregates or stock market indices in the central bank's information set affects the stabilization performance of an optimal monetary policy rule. It is shown that accounting for uncertainty about the structural relationships within the economy leads to a strong deterioration in the stabilization success of monetary policy reaction functions that respond to the growth rates of monetary aggregates or stock market indices. In addition it is analyzed whether money growth or changes in stock market indices help to explain US monetary policy in the recent years.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 31 (2009) Issue (Month): 2 (June) Pages: 345-361 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF