IDEAS home Printed from https://ideas.repec.org/p/bru/bruedp/02-30.html
   My bibliography  Save this paper

Optimal Monetary Policy with Wealth Effects

Author

Listed:
  • A. Kontonikas
  • A. Montagnoli

Abstract

This paper analyses optimal monetary policy using a structural model of the economy that allows for the effect of changes in asset prices on aggregate demand. The important feature is that monetary policy is assumed to affect output and inflation not only directly via firms’ level of investment but also via consumption through realized capital gains. Solving the Central Bank’s dynamic optimization problem, we derive an optimal interest rule where nominal interest rates are set according to concurrent inflation and the output gap. When wealth effects are considered though, the optimal response to inflation is lower, as compared to the conventional Taylor rule.

Suggested Citation

  • A. Kontonikas & A. Montagnoli, 2002. "Optimal Monetary Policy with Wealth Effects," Economics and Finance Discussion Papers 02-30, Economics and Finance Section, School of Social Sciences, Brunel University.
    • Handle: RePEc:bru:bruedp:02-30
    as

    Download full text from publisher

    File URL: http://www.brunel.ac.uk/329/efwps/02-30.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bru:bruedp:02-30. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John.Hunter (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.