Monetary Policy and Stock Market Booms
48 Pages Posted: 1 Oct 2010 Last revised: 6 Aug 2014
There are 2 versions of this paper
Monetary Policy and Stock Market Booms
Monetary Policy and Stock Market Booms
Date Written: September 24, 2010
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.
Keywords: Inflation Targeting, Sticky Prices, Sticky Wages, Stock Price Boom, DSGE Model, New Keynesian Model, News, Interest Rate Rule
JEL Classification: E42, E58
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Can News About the Future Drive the Business Cycle?
By Nir Jaimovich and Sergio T. Rebelo
-
Can News About the Future Drive the Business Cycle?
By Nir Jaimovich and Sergio T. Rebelo
-
Stock Prices, News and Economic Fluctuations
By Paul Beaudry and Franck Portier
-
Stock Prices, News and Economic Fluctuations
By Paul Beaudry and Franck Portier
-
An Exploration into Pigou's Theory of Cycles
By Paul Beaudry and Franck Portier
-
Monetary Policy and Stock Market Boom-Bust Cycles
By Lawrence J. Christiano, Cosmin L. Ilut, ...
-
Time-Separable Preference and Intertemporal-Substitution Models of Business Cycles
By Robert J. Barro and Robert G. King
-
Monetary Policy and Stock Market Booms
By Lawrence J. Christiano, Cosmin L. Ilut, ...
-
When Can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?
By Paul Beaudry and Franck Portier