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Monetary policy, stock prices, and consumption externalities

  • Airaudo, Marco

We study interest rate rules responding to stock prices in a sticky-price sticky-wage New-Keynesian framework subject to consumption externalities. For given wage rigidity, such rules are beneficial to equilibrium determinacy if households’ preferences feature sufficiently strong keeping-up-with-the-Joneses externalities.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 120 (2013)
Issue (Month): 3 ()
Pages: 537-541

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Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:537-541
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  10. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
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  16. Airaudo, Marco, 2013. "Monetary policy and stock price dynamics with limited asset market participation," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 1-22.
  17. Kevin J. Lansing, 2003. "Should the Fed react to the stock market?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov14.
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  23. Karen E. Dynan & Enrichetta Ravina, 2007. "Increasing Income Inequality, External Habits, and Self-Reported Happiness," American Economic Review, American Economic Association, vol. 97(2), pages 226-231, May.
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