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Asset prices and monetary policy in a sticky-price economy with financial frictions

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  • Nutahara, Kengo

Abstract

A recent study shows that equilibrium indeterminacy arises if monetary policy responds to asset prices, especially share prices, in a sticky-price economy. We show that equilibrium indeterminacy never arises if the working capital of firms is subject to their asset values by financial frictions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24113.

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Date of creation: 05 Apr 2010
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Handle: RePEc:pra:mprapa:24113

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Keywords: asset prices; financial frictions; equilibrium indeterminacy; monetary policy; sticky prices;

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References

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  1. Tomoyuki Nakajima & Masaru Inaba & Keiichiro Kobayashi, 2007. "Collateral constraint and news-driven cycles," 2007 Meeting Papers, Society for Economic Dynamics 320, Society for Economic Dynamics.
  2. Keiichiro Kobayashi & Kengo Nutahara, 2007. "Collateralized capital and news-driven cycles," Economics Bulletin, AccessEcon, vol. 5(18), pages 1-9.
  3. Tommaso Monacelli & Ester Faia, 2005. "Optimal Interest Rate Rules, Asset Prices and Credit Frictions," Computing in Economics and Finance 2005, Society for Computational Economics 452, Society for Computational Economics.
  4. repec:ebl:ecbull:v:5:y:2007:i:18:p:1-9 is not listed on IDEAS
  5. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer, Springer, vol. 12(3), pages 583-597.
  6. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 253-257, May.
  7. Sharon G. Harrison & Mark Weder, 2010. "Sunspots and Credit Frictions," School of Economics Working Papers 2010-02, University of Adelaide, School of Economics.
  8. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 739-764, June.
  9. Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
  10. Zheng Liu & Pengfei Wang & Tao Zha, 2009. "Do Credit Constraints Amplify Macroeconomic Fluctuations?," Emory Economics, Department of Economics, Emory University (Atlanta) 0910, Department of Economics, Emory University (Atlanta).
  11. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  12. Charles T. Carlstrom & Timothy S. Fuerst, 2004. "Asset prices, nominal rigidities, and monetary policy," Working Paper 0413, Federal Reserve Bank of Cleveland.
  13. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(1), pages 75-97, January.
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Cited by:
  1. Lise Clain-Chamosset-Yvrard & Thomas Seegmuller, 2013. "Rational Bubbles and Macroeconomic Fluctuations: The (De-)Stabilizing Role of Monetary Policy," Working Papers halshs-00793063, HAL.

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