Monetary Policy under Uncertainty about the Nature of Asset-Price Shocks
The effects of an asset-price movement on inflation and output depend on whether that movement is fundamental or not. However, central banks cannot observe this. This paper examines the issue of how central banks should respond to asset prices given this constraint. Using a modified version of the Gruen, Plumb, and Stone (2005) model, this paper finds it is better to adopt a three-standard-deviation threshold rule for deciding whether to include asset prices in output-gap and inflation forecasts and monetary policy than to ignore asset prices altogether.
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- David Gruen & Michael Plumb & Andrew Stone, 2003.
"How Should Monetary Policy Respond to Asset-price Bubbles?,"
RBA Research Discussion Papers
rdp2003-11, Reserve Bank of Australia.
- David Gruen & Michael Plumb & Andrew Stone, 2003. "How Should Monetary Policy Respond to Asset-price Bubbles?," RBA Annual Conference Volume, in: Anthony Richards & Tim Robinson (ed.), Asset Prices and Monetary Policy Reserve Bank of Australia.
- David Gruen & Michael Plumb & Andrew Stone, 2005. "How Should Monetary Policy Respond to Asset-Price Bubbles?," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
- Gruen, David & Plumb, Michael & Stone, Andrew, 2005. "How Should Monetary Policy Respond to Asset-Price Bubbles?," MPRA Paper 833, University Library of Munich, Germany.
- Tim Robinson & Andrew Stone, 2005.
"Monetary Policy, Asset-Price Bubbles and the Zero Lower Bound,"
NBER Working Papers
11105, National Bureau of Economic Research, Inc.
- Tim Robinson & Andrew Stone, 2006. "Monetary Policy, Asset-Price Bubbles, and the Zero Lower Bound," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 43-90 National Bureau of Economic Research, Inc.
- Tim Robinson & Andrew Stone, 2005. "Monetary Policy, Asset-price Bubbles and the Zero Lower Bound," RBA Research Discussion Papers rdp2005-04, Reserve Bank of Australia.
- Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc.
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