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Imperfect capital markets and nominal wage rigidities

Author

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  • Charles T. Carlstrom
  • Timothy S. Fuerst

Abstract

Should monetary policy respond to asset prices? This paper analyzes a general equilibrium model with imperfect capital markets and rigid nominal wages. Within the context of this model, there is a natural role for the benevolent central bank to dampen the real effects of asset price movements.

Suggested Citation

  • Charles T. Carlstrom & Timothy S. Fuerst, 2002. "Imperfect capital markets and nominal wage rigidities," Working Paper 0205, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:0205
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    References listed on IDEAS

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    1. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, pages 253-257.
    2. Fisher, Jonas D M, 1999. "Credit Market Imperfections and the Heterogeneous Response of Firms to Monetary Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 187-211, May.
    3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    4. 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, pages 893-910.
    5. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
    6. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, pages 14-31.
    7. Carlstrom, Charles T. & Fuerst, Timothy S., 2001. "Monetary shocks, agency costs, and business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 1-27.
    8. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, pages 281-313.
    9. Thomas Cooley & Vincenzo Quadrini, 2006. "Monetary policy and the financial decisions of firms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 243-270.
    10. Kwanghee Nam & Thomas F. Cooley, 1998. "Asymmetric information, financial intermediation, and business cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 599-620.
    11. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, pages 841-879.
    12. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 583-597.
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    Citations

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    Cited by:

    1. Milne, Alistair, 2006. "What is in it for us? Network effects and bank payment innovation," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1613-1630, June.
    2. Bjørnland, Hilde C. & Leitemo, Kai, 2005. "Identifying the Interdependence between US Monetary Policy and the Stock Market," Memorandum 12/2005, Oslo University, Department of Economics.
    3. Anufriev, Mikhail & Panchenko, Valentyn, 2009. "Asset prices, traders' behavior and market design," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1073-1090, May.
    4. Bjørnland, Hilde C. & Leitemo, Kai, 2009. "Identifying the interdependence between US monetary policy and the stock market," Journal of Monetary Economics, Elsevier, pages 275-282.
    5. Bjørnland, Hilde C. & Leitemo, Kai, 2009. "Identifying the interdependence between US monetary policy and the stock market," Journal of Monetary Economics, Elsevier, pages 275-282.

    More about this item

    Keywords

    Monetary policy ; Asset pricing;

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