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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. Zheng Liu & Pengfei Wang & Tao Zha, 2009. "Do Credit Constraints Amplify Macroeconomic Fluctuations?," Emory Economics 0910, Department of Economics, Emory University (Atlanta).
  2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  3. Tommaso Monacelli & Ester Faia, 2005. "Optimal Interest Rate Rules, Asset Prices and Credit Frictions," Computing in Economics and Finance 2005 452, Society for Computational Economics.
  4. Sharon Harrison & Mark Weder, 2010. "Sunspots and Credit Frictions," CDMA Working Paper Series 201001, Centre for Dynamic Macroeconomic Analysis.
  5. repec:ebl:ecbull:v:5:y:2007:i:18:p:1-9 is not listed on IDEAS
  6. Charles T. Carlstrom & Timothy Fuerst, 2007. "Asset Prices, Nominal Rigidities, and Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(2), pages 256-275, April.
  7. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
  8. KOBAYASHI Keiichiro & NAKAJIMA Tomoyuki & INABA Masaru, 2007. "Collateral Constraint and News-driven Cycles," Discussion papers 07013, Research Institute of Economy, Trade and Industry (RIETI).
  9. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
  10. 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.
  11. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer, vol. 12(3), pages 583-597.
  12. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
  13. KOBAYASHI Keiichiro & NUTAHARA Kengo, 2007. "Collateralized capital and News-driven cycles," Discussion papers 07062, Research Institute of Economy, Trade and Industry (RIETI).
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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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