Monetary Policy, Inflation, and Rational Asset Price Bubbles

2021 ◽  
Author(s):  
DAISUKE IKEDA
Keyword(s):  
Monetary Policy ◽  
Asset Price ◽  
Asset Price Bubbles ◽  
Price Bubbles

scholarly journals Deflating asset price bubbles with leverage constraints and monetary policy

2018 ◽  
Vol 155 ◽  
pp. 1-27 ◽  
Author(s):  
Guidon Fenig ◽  
Mariya Mileva ◽  
Luba Petersen
Keyword(s):  
Monetary Policy ◽  
Asset Price ◽  
Asset Price Bubbles ◽  
Price Bubbles

scholarly journals Should Monetary Policy Respond To Asset Price Bubbles? Revisiting the Debate

2008 ◽  
Vol 206 ◽  
pp. 25-34 ◽  
Author(s):  
Sushil Wadhwani
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Asset Prices ◽  
Asset Price ◽  
Financial System ◽  
Central Banks ◽  
Macroeconomic Performance ◽  
Asset Price Bubbles ◽  
Price Bubbles ◽  
Inflation Forecasts

Recent events have highlighted the importance of asset prices to central bank decisions. We argue that, in response to asset price bubbles, central banks should ‘lean against the wind’ (LATW hereafter). Even if the bubbles themselves are not significantly affected by LATW, macroeconomic performance can be improved if monetary policy reacts to asset price misalignments over and above the reaction to fixed horizon inflation forecasts. In addition, it might reduce the probability of bubbles arising at all. This article restates the case for LATW, and reviews the debate. In particular I respond to various criticisms that have been made against LATW and briefly consider alternative policies designed to make the financial system less cyclical.

scholarly journals Monetary Policy and Rational Asset Price Bubbles

2014 ◽  
Vol 104 (3) ◽  
pp. 721-752 ◽  
Author(s):  
Jordi Galí
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Aggregate Demand ◽  
Asset Price ◽  
Optimal Monetary Policy ◽  
Monetary Policies ◽  
Asset Price Bubbles ◽  
Price Bubbles ◽  
Price Bubble ◽  
The Impact

I examine the impact of alternative monetary policy rules on a rational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interest rates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth. The optimal monetary policy seeks to strike a balance between stabilization of the bubble and stabilization of aggregate demand. The paper's main findings call into question the theoretical foundations of the case for “leaning against the wind” monetary policies. (JEL E13, E32, E44, E52, G12)

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