Optimal Monetary Policy and Stock-Prices Dynamics in a Non-Ricardian DSGE Model
In a DSGE model with non-ricardian agents, a' la Blanchard-Yaari, stock-price fluctuations affect the dynamics of aggregate consumption through wealth effects. This wealth effects can be characterized as an additional dynamic distortion with respect to the social planner allocation, related to the cross sectional consumption dispersion that the decentralized allocation implies. By exploiting the specific cross-sectional distribution that the model implies for individual financial wealth, this paper derives the welfare criterion consistent with this economy, and shows that it features an additional target besides output-gap and price stability: financial stability. The ultimate implication is that price stability is no longer necessarily optimal, even absent cost push shocks. Given the quadratic form of the welfare criterion, some fluctuations in output and inflation will be optimal as long as they reduce the volatility of financial wealth.
|Date of creation:||2011|
|Contact details of provider:|| Postal: Viale Romania 32 - 00197 Roma|
Phone: 06 85225.550
Fax: 06 85225.973
Web page: http://ricerca.economiaefinanza.luiss.it/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marco Airaudo & Salvatore Nisticò & Luis‐Felipe Zanna, 2015.
"Learning, Monetary Policy, and Asset Prices,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 47(7), pages 1273-1307, October.
- Airaudo, Marco & Nisticò, Salvatore & Zanna, Luis-Felipe, 2012. "Learning, Monetary Policy and Asset Prices," School of Economics Working Paper Series 2012-12, LeBow College of Business, Drexel University.
- Marco Airaudo & Salvatore Nisticò & Luis-Felipe Zanna, 2014. "Learning, Monetary Policy and Asset Prices," Working Papers 4/14, Sapienza University of Rome, DISS.
- Piergallini, Alessandro, 2004. "Real Balance Effects, Determinacy and Optimal Monetary Policy," MPRA Paper 59832, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:lui:casmef:1107. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stefano Marzioni)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.