Limited Asset Market Participation: Does it Really Matter for Monetary Policy?
AbstractWe study the design of monetary policy in an economy characterized by staggered wage and price contracts together with limited asset market participation (LAMP). Contrary to previous results, we find that once nominal wage stickiness, an incontrovertible empirical fact, is considered: i) the Taylor Principle is restored as a necessary condition for equilibrium determinacy for any empirically plausible degree of LAMP; ii) the effect of LAMP for the design of optimal monetary policy are minor; iii) optimal interest rate rules become active no matter the degree of asset market participation. For this reasons we argue that LAMP does not matter much for monetary policy.
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Bibliographic InfoPaper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 124.
Length: 50 pages
Date of creation: Oct 2010
Date of revision:
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More information through EDIRC
optimal monetary policy; sticky wages; non-Ricardian household; determinacy; optimal simple rules.;
Other versions of this item:
- Ascari, Guido & Colciago , Andrea & Rossi, Lorenza, 2011. "Limited asset market participation: does it really matter for monetary policy?," Research Discussion Papers 15/2011, Bank of Finland.
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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