TEL  Vol.4 No.8 , October 2014
Asset Prices, Nominal Rigidities, and Monetary Policy: Negative Monetary Policy Responses to Asset Price Fluctuations
Author(s) Kengo Nutahara1,2
ABSTRACT
Carlstrom and Fuerst [“Asset Prices, Nominal Rigidities, and Monetary Policy,” Review of Economic Dynamics, Vol. 10, 2007, pp. 256-275] find that a positive monetary policy response to share prices is a source of equilibrium indeterminacy. In this note, we investigate the negative response of a central bank to share prices. We find that a negative monetary policy response to share prices is also a source of equilibrium indeterminacy.

Cite this paper
Nutahara, K. (2014) Asset Prices, Nominal Rigidities, and Monetary Policy: Negative Monetary Policy Responses to Asset Price Fluctuations. Theoretical Economics Letters, 4, 634-638. doi: 10.4236/tel.2014.48080.
References
[1]   Carlstrom, C.T. and Fuerst, T.S. (2007) Asset Prices, Nominal Rigidities, and Monetary Policy. Review of Economics Dynamics, 10, 256-275. http://dx.doi.org/10.1016/j.red.2006.11.005

[2]   Faia, E. and Monacelli, T. (2007) Optimal Interest Rate Rules, Asset Prices, and Credit Frictions. Journal of Economics Dynamics and Control, 31, 3228-3254.
http://dx.doi.org/10.1016/j.jedc.2006.11.006

[3]   Carlstrom, C.T. and Fuerst, T.S. (1997) Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis. American Economic Review, 87, 893-910.
http://www.jstor.org/stable/2951331

[4]   Erceg, C.J., Henderson, D.W. and Levin, A.T. (2000) Optimal Monetary Policy with Staggered Wage and Price Contracts. Journal of Monetary Economics, 46, 281-313. http://dx.doi.org/10.1016/S0304-3932(00)00028-3

 
 
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