Nutahara, Kengo (2011): Asset Prices, Nominal Rigidities, and Monetary Policy: Role of Price Indexation.
Download (55kB) | Preview
Carlstrom and Fuerst (2007) [``Asset prices, nominal rigidities, and monetary policy,'' Review of Economic Dynamics 10, 256--275] find that monetary policy response to share prices is a source of equilibrium indeterminacy because an increase in inflation implies a high real marginal cost and low share prices in a sticky-price economy. We find that if the New Keynesian Phillips curve has a lagged inflation term caused by price indexation, this effect is weakened. Moreover, equilibrium indeterminacy caused by monetary policy response to share prices never arises if all the firms that cannot re-optimize their prices follow price indexation.
|Item Type:||MPRA Paper|
|Original Title:||Asset Prices, Nominal Rigidities, and Monetary Policy: Role of Price Indexation|
|Keywords:||asset prices; monetary policy; equilibrium determinacy; price indexation|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Kengo Nutahara|
|Date Deposited:||30. Mar 2011 19:14|
|Last Modified:||15. Feb 2013 13:03|
Bernanke, B., and M. Gertler, 2001, Should central banks respond to movements in asset prices? American Economic Review 91(2), 253--257.
Bullard, J., and K. Mitra, 2002, Learning about monetary policy rules, Journal of Monetary Economics 49, 1105--1129.
Carlstrom, C. T., and T. S. Fuerst, 2007, Asset prices, nominal rigidities, and monetary policy, Review of Economics Dynamics 10, 256--275.
Christiano, L., M. Eichenbaum, and C. Evans, 2005, Nominal rigidities and the dynamic effects of a shock to monetary policy, Journal of Political Economy 113, 1--45.
Faia, E., and T. Monacelli, 2007, Optimal interest rate rules, asset prices, and credit frictions, Journal of Economics Dynamics and Control 31, 3228--3254.
Fuhrer, J., and G. Moore, 1995, Inflation persistence, Quarterly Journal of Economics 110, 127--159.
Gali, J., and M. Gertler, 1999, Inflation dynamics, Journal of Monetary Economics 44, 195--222.
Gilchrist, S., and J. V. Leahy, 2002,Monetary policy and asset prices, Journal of Monetary Economics 49(1), 75--97.
Iacoviello, M., 2005, House prices, borrowing constraints, and monetary policy in the business cycle, American Economic Review 95(2), 739--764.
Smets, F., and R. Wouters, 2007, Shocks and frictions in U.S. business cycles: A Bayesian DSGE approach, American Economic Review 97, 586--606.