KANIK, Birol (2011): Learning, monetary policy and housing prices. Forthcoming in: Central Bank Review (January 2012)
Download (763kB) | Preview
This paper evaluates different types of simple monetary policy rules according to the determinacy and learnability of rational expectations equilibrium criteria within a dynamic stochastic general equilibrium framework. Incorporating housing prices and collateralized borrowing into the standard model allow us to answer important policy questions. One objective is to investigate whether responding to housing prices affects determinacy and learnability of rational expectations equilibrium. For this purpose, we work with a New Keynesian model in which housing plays an accelerator role in business cycles as a collateralized asset. The results show that for current data rule, responding to asset prices does not improve learnable outcomes but for a monetary policy with lagged data and forward-looking rules we see improved learnable outcome if current housing prices are available to monetary authority. Moreover, we examine the effects of interest rate inertia and price stickiness on E-stability of REE.
|Item Type:||MPRA Paper|
|Original Title:||Learning, monetary policy and housing prices|
|Keywords:||monetary policy rules, determinacy, learning, housing prices|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
|Depositing User:||Birol KANIK|
|Date Deposited:||06. Jan 2012 23:10|
|Last Modified:||14. Feb 2013 15:07|
Batini, N. and E. Nelson, 2000, When the Bubble Bursts: Monetary Policy Rules and Foreign Exchange Market Behavior, working paper, Bank of England.
Benhabib, J. and Roger E. A. Farmer, 1998, Indeterminacy and Sunspots in Macroeconomics.
Bernanke, B. and M. Gertler, 2001, Should Central Banks Respond to Movements in Asset Prices? American Economic Review 91 (2), 253 - 257.
Bernanke, B., M. Gertler and S. Gilchrist, 1999, The Financial Accelerator in a Quantitative Business Cycle Framework, in J. Taylor and M. Woodford, eds., Handbook of Macroeconomics, Vol. 1C. Amsterdam: Elsevier Science, North-Holland, 1341 - 1393. Bernanke, B. and M.Woodford, 1997, Inflation Forecasts and Monetary Policy, Journal of Money, Credit, and Banking 29, 653-684.
Bullard, J. and K. Mitra, 2002, Learning About Monetary Policy Rules, Journal of monetary Economics 49, 1105-1129.
Bullard, J. and K. Mitra, 2007, Determinacy, Learnability and Monetary Policy Inertia, Journal of Money, Credit and Banking 39 (5), 1177-1212.
Carlstrom, C. and T. Fuerst, 2007, Asset Prices, Nominal Rigidities, and Monetary Policy. Review of Economic Dynamics 10, 256-275.
Ceccetti, S., H. Genberg, J. Lipsky, and S.Wadhwani 2000, Asset Prices and Central Bank Policy, Geneva Report on the World Economy 2, CEPR and ICMB. Christiano, L. and C. Gust, 1999, Taylor Rules in a Limited Participation Model. NBER Working Paper No. 7017, March.
Evans, G. and S. Honkapohja, 1999, Learning Dynamics. In: Taylor, J. and M.Woodford (Eds), Handbook of Macroeconomics. North-Holland, Amsterdam.
Evans, G. and S. Honkapohja, 2001, Learning and Expectations in Macroeconomics. Princeton University Press, Princeton, New Jersey.
Farmer, R.E.A, 2002, Macroeconomics of Self-fulfilling Prophecies, The MIT Press, Cambridge, Massachusetts.
Iacoviello, M. 2005, House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle, American Economic Review. 95(3):739-64.
Kanik, B. and W. Xiao, 2010, News, Housing Boom-Bust Cycles and Monetary Policy, working paper.
Rigobon,R., and B.Sacks, (2003), Measuring the Response of Monetary Policy to the Stock Market, Quarterly Journal of Economics,118, 639-669.
Rudebusch, G.D., 1995, Federal Reserve Interest Rate Targeting, Rational Expectations, and The Term Structure, Journal of Monetary Economics, 35, 245-274.
Sack, B.,1998, Uncertainty, Learning and Gradual Monetary Policy, Board of Governors of the Federal Reserve System.
Sargent, T.J. and N. Wallace, 1975, Rational Expectations, the Optimal Monetary Instrument and The Optimal Monetary Supply Rule, Journal of Political Economy 83(2), 241-254.
Woodford, M., 2001, The Taylor Rule and Optimal Monetary Policy, American Economic Review Papers and Proceedings 91(2), 232-237.
Woodford, M., 2001, Inflation Stabilization and Welfare, NBER Working Paper No. 8071, January.
Woodford, M., 2003, Interest and Prices, Foundations of a Theory of Monetary Policy, Princeton University Press, Princeton, New Jersey.