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Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations

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  • Jordi Galí

Abstract

I analyze an extension of the New Keynesian model that features overlapping generations of finitely- lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model's welfare implications.

Suggested Citation

  • Jordi Galí, 2017. "Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations," Working Papers 959, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:959
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    Cited by:

    1. Alberto Martin & Jaume Ventura, 2018. "The Macroeconomics of Rational Bubbles: A User's Guide," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 505-539, August.
    2. Roberto M. Billi & Jordi Galí & Anton Nakov, 2022. "Optimal Monetary Policy with r," Working Papers 1333, Barcelona School of Economics.
    3. Michau, Jean-Baptiste & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Wealth preference and rational bubbles," European Economic Review, Elsevier, vol. 156(C).
    4. Altermatt, Lukas, 2019. "Savings, asset scarcity, and monetary policy," Journal of Economic Theory, Elsevier, vol. 182(C), pages 329-359.

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    More about this item

    Keywords

    monetary policy rules; stabilization policies; asset price volatility; economic fluctuations;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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