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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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File URL: http://www.sciencedirect.com/science/article/pii/S0165176513002978
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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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  1. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
  2. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series 0722, European Central Bank.
  3. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  4. Olivier Jean Blanchard & Jordi Galí, 2005. "Real wage rigidities and the New Keynesian model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  5. Harald Uhlig, 2007. "Explaining Asset Prices with External Habits and Wage Rigidities in a DSGE Model," American Economic Review, American Economic Association, vol. 97(2), pages 239-243, May.
  6. Airaudo, Marco, 2013. "Monetary policy and stock price dynamics with limited asset market participation," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 1-22.
  7. Airaudo, Marco & Cardani, Roberta & Lansing, Kevin J., 2013. "Monetary policy and asset prices with belief-driven fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1453-1478.
  8. 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.
  9. James B. Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis.
  10. Pfajfar, Damjan & Santoro, Emiliano, 2011. "Determinacy, stock market dynamics and monetary policy inertia," Economics Letters, Elsevier, vol. 112(1), pages 7-10, July.
  11. Alessandro Barattieri & Susanto Basu & Peter Gottschalk, 2010. "Some Evidence on the Importance of Sticky Wages," Boston College Working Papers in Economics 740, Boston College Department of Economics.
  12. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 963-1002.
  13. Charles T. Carlstrom & Timothy S. Fuerst, 2004. "Asset prices, nominal rigidities, and monetary policy," Working Paper 0413, Federal Reserve Bank of Cleveland.
  14. Kevin J. Lansing, 2003. "Should the Fed react to the stock market?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov14.
  15. Jürgen Maurer & André Meier, 2008. "Smooth it Like the 'Joneses'? Estimating Peer-Group Effects in Intertemporal Consumption Choice," Economic Journal, Royal Economic Society, vol. 118(527), pages 454-476, 03.
  16. Jaime Alonso-Carrera & Jordi caballe & Xavier Raurich, 2007. "Can Consumption Spillovers Be A Source Of Equilibrium Indeterminacy?," CAMA Working Papers 2007-13, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  17. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  18. James B. Bullard & Eric Schaling, 2002. "Why the Fed should ignore the stock market," Review, Federal Reserve Bank of St. Louis, issue Mar., pages 35-42.
  19. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February.
  20. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  21. Kai Christoffel & Tobias Linzert, 2010. "The Role of Real Wage Rigidity and Labor Market Frictions for Inflation Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1435-1446, October.
  22. Marianne Bertrand & Adair Morse, 2013. "Trickle-Down Consumption," NBER Working Papers 18883, National Bureau of Economic Research, Inc.
  23. Kevin J. Lansing, 2008. "Monetary policy and asset prices," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct31.
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