 Monetary policy and asset prices: To respond or not?Qaisar Akram, Gunnar Bårdsen and Øyvind Eitrheim No 2005/9, Working Paper from Norges Bank Abstract: We investigate whether there is a case for asset prices in interest rates rules within a small econometric model of the Norwegian economy, modeling the interdependence of the real economy, credit and three classes of assets prices: housing prices, equity prices and the nominal exchange rate. We compare the performance of simple and efficient interest rate rules that allow for response to movements in asset prices to the performance of more standard monetary policy rules. We find that including housing prices and equity prices in the policy rules can improve macroeconomic performance in terms of both nominal and real economic stability. In contrast, a response to nominal exchange rate fluctuations can induce excess volatility in general and prove detrimental to macroeconomic stability. Keywords: Monetary policy; asset prices; simple interest rate rules; econometric model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2005_09 Access Statistics for this paper More papers in Working Paper from Norges Bank Contact information at EDIRC. |
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