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Asset Prices and Monetary Policy in a Sticky-Price Economy with Financial Frictions

  • NUTAHARA Kengo

A recent study shows that equilibrium indeterminacy arises if monetary policy responds to asset prices, especially share prices, in a sticky-price economy. We show that equilibrium indeterminacy never arise if the working capital of firms is subject to their asset values by financial frictions.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 10060.

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Length: 14 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:eti:dpaper:10060
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  1. Charles T. Carlstrom & Timothy S. Fuerst, 2004. "Asset prices, nominal rigidities, and monetary policy," Working Paper 0413, Federal Reserve Bank of Cleveland.
  2. KOBAYASHI Keiichiro & NUTAHARA Kengo, 2007. "Collateralized capital and News-driven cycles," Discussion papers 07062, Research Institute of Economy, Trade and Industry (RIETI).
  3. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  4. 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.
  5. Harrison, Sharon G. & Weder, Mark, 2013. "Sunspots And Credit Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 17(05), pages 1055-1069, July.
  6. Faia, Ester & Monacelli, Tommaso, 2007. "Optimal interest rate rules, asset prices, and credit frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3228-3254, October.
  7. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
  8. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  9. Tomoyuki Nakajima & Masaru Inaba & Keiichiro Kobayashi, 2007. "Collateral constraint and news-driven cycles," 2007 Meeting Papers 320, Society for Economic Dynamics.
  10. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
  11. Zheng Liu & Pengfei Wang & Tao Zha, 2010. "Do credit constraints amplify macroeconomic fluctuations?," Working Paper 2010-01, Federal Reserve Bank of Atlanta.
  12. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer, vol. 12(3), pages 583-597.
  13. repec:ebl:ecbull:v:5:y:2007:i:18:p:1-9 is not listed on IDEAS
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