Monetary Policy, Doubts and Asset Prices

Pierpaolo Beningo and Luigi Paciello ()
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Pierpaolo Beningo: LUISS, Rome
Authors registered in the RePEc Author Service: Pierpaolo Benigno

No 857, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: Asset prices and the equity premium might reflect doubts and pessimism. Introducing these features in an otherwise standard New-Keynesian model changes in a quite substantial way its normative conclusions. First, following productivity shocks, optimal policy should be very accommodative even to the point to inflate the equity premium. Second, asset-price movements improve the inflation-output trade-off so that average output can rise without increasing much average inflation. Finally, a strict inflation-targeting policy is dominated by more flexible inflation-targeting policies which increase the comovements between inflation, asset prices and output growth.

Date: 2011
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Related works:
Journal Article: Monetary policy, doubts and asset prices (2014)
Working Paper: Monetary Policy, Doubts and Asset Prices (2010)
Working Paper: Monetary Policy, Doubts and Asset Prices (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:857

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