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Optimal monetary policy in a model with agency costs


  • Timothy Fuerst

    (Bowling Green State University)

  • Matthias Paustian

    (Bank of England)

  • Charles Carlstorm

    (Federal Reserve Bank of Cleveland)


is the optimal policy. We derive the targeting criterion that implements optimal monetary policy under commitment and show under what conditions the target depends on leads or lags of the risk premium. Finally, the paper demonstrates that the degree of price stickiness and/or the nature of monetary policy alter the endogenous propagation of net worth across time.

Suggested Citation

  • Timothy Fuerst & Matthias Paustian & Charles Carlstorm, 2009. "Optimal monetary policy in a model with agency costs," 2009 Meeting Papers 667, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:667

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    References listed on IDEAS

    1. Benjamin Keen & Yongsheng Wang, 2007. "What is a realistic value for price adjustment costs in New Keynesian models?," Applied Economics Letters, Taylor & Francis Journals, vol. 14(11), pages 789-793.
    2. 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.
    3. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
    4. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(3), pages 583-597.
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