|
|
|
|
||||
|
||||
Monetary Policy and Stock Market BoomsLawrence J. ChristianoNorthwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER) Cosmin L. IlutDuke University Roberto MottoEuropean Central Bank (ECB) Massimo RostagnoEuropean Central Bank (ECB) September 24, 2010 Economic Research Initiatives at Duke (ERID) Working Paper No. 69 Abstract: Historical data and model simulations support the following conclusion. Inflation is low during stock market booms, so that an interest rate rule that is too narrowly focused on inflation destabilizes asset markets and the broader economy. Adjustments to the interest rate rule can remove this source of welfare-reducing instability. For example, allowing an independent role for credit growth (beyond its role in constructing the inflation forecast) would reduce the volatility of output and asset prices.
Number of Pages in PDF File: 48 Keywords: Inflation Targeting, Sticky Prices, Sticky Wages, Stock Price Boom, DSGE Model, New Keynesian Model, News, Interest Rate Rule JEL Classification: E42, E58 Accepted Paper SeriesDate posted: October 1, 2010 ; Last revised: October 5, 2010Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo2 in 0.516 seconds
