Monetary Policy and Stock Market Booms
Por Christiano, Lawrence; Ilut, Cosmin; Motto, Roberto; Rostagno, Massimo
March 2011
Idioma: English
Keywords
- DSGE model
- inflation targeting
- interest rate rule
- New Keynesian model
- news
- sticky prices
- sticky wages
- stock price boom
Clasificación JEL:
- E42
- E58
Resumen:
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.