Optimal Monetary Policy And Asset Price Misalignments
This paper analyses the relationship between monetary policy and asset prices in the context of optimal policy rules. The transmission mechanism is represented by a linearized rational expectations model augmented for the effect of asset prices on aggregate demand. Stabilization objectives are represented by a discounted quadratic loss function penalizing inflation and output gap volatility. Asset prices are allowed to deviate from their intrinsic value since they may be positively affected by past price changes. We find that in the presence of wealth effects and inefficient markets, asset price misalignments from their fundamentals should be included in the optimal interest rate reaction function.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 53 (2006)
Issue (Month): 5 (November)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0036-9292|
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0036-9292|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- A. Kontonikas & A. Montagnoli, 2002.
"Has Monetary Policy Reacted To Asset Price Movements: Evidence From The Uk,"
Economics and Finance Discussion Papers
02-11, Economics and Finance Section, School of Social Sciences, Brunel University.
- Alexandros Kontonikas & Alberto Montagnoli, 2004. "Has Monetary Policy Reacted to Asset Price Movements? Evidence from the UK," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 7(1), pages 18-33, Summer.
- A. Kontonikas & A. Montagnoli, 2002. "Has Monetary Policy Reacted To Asset Price Movements: Evidence From The Uk," Public Policy Discussion Papers 02-11, Economics and Finance Section, School of Social Sciences, Brunel University.
- Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
- Tro Kortian, 1995. "Modern Approaches to Asset Price Formation: A Survey of Recent Theoretical Literature," RBA Research Discussion Papers rdp9501, Reserve Bank of Australia.
- Ben Bernanke & Mark Gertler, 2000.
"Monetary Policy and Asset Price Volatility,"
NBER Working Papers
7559, National Bureau of Economic Research, Inc.
- Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
- Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 17-51.
- Haizhou Huang & Peter B Clark & Charles Goodhart, 1996.
"Optimal Monetary Policy Rules in a Rational Expectations Model of the Phillips Curve,"
FMG Discussion Papers
dp247, Financial Markets Group.
- Clark, Peter B. & Goodhart, Charles A. E. & Huang, Haizhou, 1999. "Optimal monetary policy rules in a rational expectations model of the Phillips curve," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 497-520, April.
- Bordo, Michael D & Jeanne, Olivier, 2002.
"Boom-Busts in Asset Prices, Economic Instability and Monetary Policy,"
CEPR Discussion Papers
3398, C.E.P.R. Discussion Papers.
- Michael D. Bordo & Olivier Jeanne, 2002. "Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy," NBER Working Papers 8966, National Bureau of Economic Research, Inc.
- Chadha, Jagjit S & Sarno, Lucio & Valente, Giorgio, 2003.
"Monetary Policy Rules, Asset Prices and Exchange Rates,"
CEPR Discussion Papers
4114, C.E.P.R. Discussion Papers.
- Jagjit S. Chadha & Lucio Sarno & Giorgio Valente, 2004. "Monetary Policy Rules, Asset Prices, and Exchange Rates," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 529-552, November.
- Jagjit S. Chadha & Lucio Sarno & Giorgio Valente, 2004. "Monetary Policy Rules, Asset Prices and Exchange Rates," CDMA Working Paper Series 200403, Centre for Dynamic Macroeconomic Analysis.
- Garber, Peter M, 1990. "Famous First Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 35-54, Spring.
- Goodhart, Charles & Hofmann, Boris, 2000. "Financial Variables and the Conduct of Monetary Policy," Working Paper Series 112, Sveriges Riksbank (Central Bank of Sweden).
- Conover, C. Mitchell & Jensen, Gerald R. & Johnson, Robert R., 1999. "Monetary environments and international stock returns," Journal of Banking & Finance, Elsevier, vol. 23(9), pages 1357-1381, September.
- Lars E. O. Svensson, 2003.
"What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules,"
Journal of Economic Literature,
American Economic Association, vol. 41(2), pages 426-477, June.
- Lars E. O. Svensson, 2003. "What is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," NBER Working Papers 9421, National Bureau of Economic Research, Inc.
- Charles Bean, 2003.
"Asset Prices, Financial Imbalances and Monetary Policy: Are Inflation Targets Enough?,"
RBA Annual Conference Volume,
in: Anthony Richards & Tim Robinson (ed.), Asset Prices and Monetary Policy
Reserve Bank of Australia.
- Charles Bean, 2003. "Asset prices, financial imbalances and monetary policy: are inflation targets enough?," BIS Working Papers 140, Bank for International Settlements.
- 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.
- Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
- Laurence Ball, 1997.
"Efficient rules for monetary policy,"
Reserve Bank of New Zealand Discussion Paper Series
G97/3, Reserve Bank of New Zealand.
- Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
When requesting a correction, please mention this item's handle: RePEc:bla:scotjp:v:53:y:2006:i:5:p:636-654. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.