Monetary Policy and Asset Price Volatility
Ben S. Bernanke
Board of Governors of the Federal Reserve System
New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)
NBER Working Paper No. w7559
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.
Number of Pages in PDF File: 75
Date posted: May 6, 2000