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Monetary Policy and Asset Price Volatility

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  • Ben Bernanke
  • Mark Gertler

Abstract

We explore the implications of asset price volatility for the management of monetary policy. We show that it is desirable for central banks to focus on underlying inflationary pressures. Asset prices become relevant only to the extent they may signal potential inflationary or deflationary forces. Rules that directly target asset prices appear to have undesirable side effects. We base our conclusions on (i) simulation of different policy rules in a small scale macro model and (ii) a comparative analysis of recent U.S. and Japanese monetary policy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7559.

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Date of creation: Feb 2000
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Publication status: published as Economic Review - Federal Reserve Bank of Kansas City, Fourth Quarter 1999, pp. 17-51
Handle: RePEc:nbr:nberwo:7559

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Professor Bernanke vs Central Banker Bernanke
    by Amol Agrawal in Mostly Economics on 2010-09-27 09:53:52
  2. Accounting for the Great Recession in the UK: Real Business Cycles and Financial Frictions
    by Christian Zimmermann in NEP-DGE blog on 2012-04-25 12:15:12
  3. Accounting for the Great Recession in the UK: Real Business Cycles and Financial Frictions
    by Christian Zimmermann in NEP-DGE blog on 2012-04-25 12:15:12
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