Monetary Policy and Rational Asset Price Bubbles: Comment
Jianjun Miao (),
Zhouxiang Shen and
Pengfei Wang ()
American Economic Review, 2019, vol. 109, issue 5, 1969-90
We revisit Galí’s (2014) analysis by extending his model to incorporate persistent bubble shocks. We find that, under adaptive learning, a stable bubbly steady state and the associated sunspot solutions under optimal monetary policy are not E-stable. When deriving the unique forward-looking minimum stable variable (MSV) solution around an unstable bubbly steady state, we obtain results that are consistent with the conventional views: leaning against the wind policy reduces bubble volatility and is optimal. Such a steady state and the associated MSV solution are E-stable.
JEL-codes: E13 E32 E44 E52 G12 (search for similar items in EconPapers)
Note: DOI: 10.1257/aer.20180145
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