We explore the stability properties of interest rate rules granting an explicit response to stock prices in a New Keynesian DSGE model where the presence of non-Ricardian households makes stock prices nonredundant for the business cycle. We find that responding to stock prices enlarges the policy space for which the equilibrium is both determinate and E-stable (learnable). In particular, the Taylor principle ceases to be necessary, and determinacy/E-stability is granted also by mildly passive policy rules. Our results appear to be more prominent in economies featuring a lower elasticity of substitution across differentiated products and/or more rigid labor markets.

Learning, Monetary Policy, and Asset Prices / Airaudo, Marco; Nistico', Salvatore; Zanna, Luis Felipe. - In: JOURNAL OF MONEY, CREDIT, AND BANKING. - ISSN 0022-2879. - STAMPA. - 47:7(2015), pp. 1273-1307. [10.1111/jmcb.12245]

Learning, Monetary Policy, and Asset Prices

NISTICO', SALVATORE;
2015

Abstract

We explore the stability properties of interest rate rules granting an explicit response to stock prices in a New Keynesian DSGE model where the presence of non-Ricardian households makes stock prices nonredundant for the business cycle. We find that responding to stock prices enlarges the policy space for which the equilibrium is both determinate and E-stable (learnable). In particular, the Taylor principle ceases to be necessary, and determinacy/E-stability is granted also by mildly passive policy rules. Our results appear to be more prominent in economies featuring a lower elasticity of substitution across differentiated products and/or more rigid labor markets.
2015
Determinacy; Expectational stability; Interest rate rules; Learning; Multiple equilibria; Stock prices; Finance; Accounting; Economics and Econometrics
01 Pubblicazione su rivista::01a Articolo in rivista
Learning, Monetary Policy, and Asset Prices / Airaudo, Marco; Nistico', Salvatore; Zanna, Luis Felipe. - In: JOURNAL OF MONEY, CREDIT, AND BANKING. - ISSN 0022-2879. - STAMPA. - 47:7(2015), pp. 1273-1307. [10.1111/jmcb.12245]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/935917
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