Optimal Monetary Policy with Wealth Effects

Alexandros Kontonikas () and Alberto Montagnoli ()

Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: This paper analyses optimal monetary policy using a structural model of the economy that allows for the effect of changes in asset prices on aggregate demand. The important feature is that monetary policy is assumed to affect output and inflation not only directly via firms’ level of investment but also via consumption through realized capital gains. Solving the Central Bank’s dynamic optimization problem, we derive an optimal interest rule where nominal interest rates are set according to concurrent inflation and the output gap. When wealth effects are considered though, the optimal response to inflation is lower, as compared to the conventional Taylor rule.

Date: 2002-11
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.brunel.ac.uk/329/efwps/02-30.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Optimal Monetary Policy with Wealth Effects (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bru:bruppp:02-30

Access Statistics for this paper

More papers in Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University
Address: Brunel University, Uxbridge, Middlesex UB8 3PH, UK
Series data maintained by John.Hunter ().