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Monetary policy and bubbles in a new Keynesian model with overlapping generations

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Abstract

I analyze an extension of the New Keynesian model that features overlapping generations of Önitely-lived agents. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I examine the conditions under which bubbly equilibria may emerge and some of the implications for monetary policy. Monetary policies that lean against the bubble are shown to be potentially destabilizing, and likely to be dominated by ináation targeting policies

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  • Jordi Galí, 2016. "Monetary policy and bubbles in a new Keynesian model with overlapping generations," Economics Working Papers 1561, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2020.
    • Handle: RePEc:upf:upfgen:1561
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    Cited by:

    1. Alberto Martin & Jaume Ventura, 2018. "The Macroeconomics of Rational Bubbles: A User's Guide," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 505-539, August.
    2. Altermatt, Lukas, 2019. "Savings, asset scarcity, and monetary policy," Journal of Economic Theory, Elsevier, vol. 182(C), pages 329-359.
    3. Roberto M. Billi & Jordi Galí & Anton Nakov, 2022. "Optimal Monetary Policy with r," Working Papers 1333, Barcelona School of Economics.
    4. Michau, Jean-Baptiste & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Wealth preference and rational bubbles," European Economic Review, Elsevier, vol. 156(C).

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    More about this item

    Keywords

    Monetary policy rules; stabilization policies; asset price volatility;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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