The Monetary Policy Implications of Behavioral Asset Bubbles

Rhys ap Gwilym

Southern Economic Journal, 2013, vol. 80, issue 1, 252-270

Abstract: I introduce behavioral asset pricing rules into a wider dynamic stochastic general equilibrium framework. Asset price bubbles emerged endogenously within the model. I find that in this model monetary policy rules that target the mispricing of the asset have a destabilizing effect; however, a monetary policy rule that targets deviations in the price of the asset from its trend can be welfare enhancing. Such a rule would also have the benefit of being straightforward to implement.

Date: 2013
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https://doi.org/10.4284/0038-4038-2011.242

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:80:y:2013:i:1:p:252-270

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