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Monetary Policy and Asset Price Volatility

75 Pages Posted: 6 May 2000 Last revised: 16 Oct 2010

Ben S. Bernanke

Board of Governors of the Federal Reserve System

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2000

Abstract

We explore the implications of asset price volatility for the management of monetary policy. We show that it is desirable for central banks to focus on underlying inflationary pressures. Asset prices become relevant only to the extent they may signal potential inflationary or deflationary forces. Rules that directly target asset prices appear to have undesirable side effects. We base our conclusions on (i) simulation of different policy rules in a small scale macro model and (ii) a comparative analysis of recent U.S. and Japanese monetary policy.

Suggested Citation

Bernanke, Ben S. and Gertler, Mark, Monetary Policy and Asset Price Volatility (February 2000). NBER Working Paper No. w7559. Available at SSRN: https://ssrn.com/abstract=217836

Ben S. Bernanke (Contact Author)

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
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Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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New York, NY 10003
United States
212-998-8931 (Phone)
212-995-4186 (Fax)

National Bureau of Economic Research (NBER)

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