Asset Bubbles and Monetary Policy
نویسندگان
چکیده
We provide a model of rational bubbles in a DNK framework. Entrepreneurs are heterogeneous in investment efficiency and face credit constraints. They can trade bubble assets to raise their net worth. The bubble assets command a liquidity premium and can have a positive value. Monetary policy affects the conditions for the existence of a bubble, its steady-state size, and its dynamics including the initial size. The leaning-against-the-wind interest rate policy reduces bubble volatility, but could raise inflation volatility. Whether monetary policy should respond to asset bubbles depends on the particular interest rate rule and exogenous shocks. JEL Classification: E32, E44, E52, G12
منابع مشابه
Should Monetary Policy Respond to Asset Price Bubbles? Some Experimental Results
Should central banks respond to asset price bubbles? This paper explores this monetary policy question in a hypothetical economy subject to asset price bubbles. Despite the highly stylized structure of the model, the results reveal several practical monetary policy lessons. First, a monetary authority should generally respond to asset prices as long as asset prices contain reliable information ...
متن کاملHow Should Central Banks Respond to Asset-Price Bubbles? The ‘Lean’ versus ‘Clean’ Debate After the GFC
One of the most important issues facing central banks is whether they should respond to potential asset-price bubbles. Because asset prices are a central element in the transmission mechanisms of monetary policy, the issue of how monetary policy might respond to asset-price movements is not whether it should respond at all but whether it should respond over and above the response called for in ...
متن کاملThe impact of monetary policy on stock market bubbles and trading behavior: Evidence from the lab
We investigate the effect of monetary policy on stock market bubbles and trading behavior in experimental asset markets. We introduce the possibility of investing in interest bearing bonds to the widely used laboratory asset market design of Smith et al. (1988). Treatment groups face a variable interest rate policy which depends on asset prices, while control groups are subjected to a constant ...
متن کاملMonetary Policy in a Changing Economic Environment
Three years ago at this same conference, I was given an opportunity to talk about Japans monetary policy in the years when asset price bubbles expanded.1 Today, I would like mainly to review monetary policy in the following phase when the bubbles burst, for an asset price swing is the changing economic environment most relevant to us. Incidentally, we are now in the third phase when the econ...
متن کاملHow Should Monetary Policy Respond to Asset-Price Bubbles? - IJCB - December 2005
We present a simple macroeconomic model that includes a role for an asset-price bubble. We then derive optimal monetary policy settings for two policymakers: a skeptic, for whom the best forecast of future asset prices is the current price; and an activist, whose policy recommendations take into account the complete stochastic implications of the bubble. We show that the activist’s recommendati...
متن کامل