Asset Market Volatility and New Keynesian Macroeconomics: A Game-Theoretic Approach

Namun Cho and Tae-Seok Jang ()
Additional contact information
Tae-Seok Jang: Kyungpook National University

Computational Economics, 2019, vol. 54, issue 1, No 11, 245-266

Abstract: Abstract This study develops a game-theoretic approach to asset market bubbles. In our model, portfolio investments consist of risk-free and risky assets. Risky assets attract more investors who may adopt a hawk strategy, because they promise a higher return than risk-free assets. However, the economy falls into a full-blown crisis state when the portion of investment devoted to risky assets exceeds a threshold. Furthermore, we incorporate the periodic bubbles in asset markets into a New Keynesian baseline model. Our simulation results show that high volatility in asset markets increases the variability of inflation and output dynamics, while uncertainty about the dynamic economy can be amplified and hence may be seen as shocks for an inefficient distribution of wealth.

Keywords: Asset market bubbles; Game-theoretic; New Keynesian; Risky asset; Volatility (search for similar items in EconPapers)
JEL-codes: C63 E31 F41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s10614-017-9705-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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: https://EconPapers.repec.org/RePEc:kap:compec:v:54:y:2019:i:1:d:10.1007_s10614-017-9705-5

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-017-9705-5

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().