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Asset price boom–burst cycle as an elastic money response to technological shocks

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  • Wong, Chin-Yoong
  • Eng, Yoke-Kee

Abstract

Through a finite-lived dynamic stochastic general equilibrium (DSGE) model comprising bubbly capital with fixed supply, one-period gestation lag, and a cash-in-advance constraint, we show that a money-accommodated but not price-accommodated technological shock can trigger excessive movement in the asset price even in a flexible-price and frictionless environment.

Suggested Citation

  • Wong, Chin-Yoong & Eng, Yoke-Kee, 2012. "Asset price boom–burst cycle as an elastic money response to technological shocks," Economics Letters, Elsevier, vol. 114(3), pages 292-295.
  • Handle: RePEc:eee:ecolet:v:114:y:2012:i:3:p:292-295 DOI: 10.1016/j.econlet.2011.10.005
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    References listed on IDEAS

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    1. 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.
    2. Christiano, Lawrence & Motto, Roberto & Rostagno, Massimo & Ilut, Cosmin, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 955, European Central Bank.
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    More about this item

    Keywords

    Asset price; Technological shock; Monetary policy;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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