Credit Frictions, housing prices and optimal monetary policy Rules

Caterina Mendicino and Andrea Pescatori ()

No 42, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: We try to assest the role of household indebtedness and housing prices in the optimal design of monetary policy rules. Even though the relevance of liquidity constraints for consumption behavior has been well documented in the empirical and theoretical literature little attention has been given to credit frictions at the household level in the monetary business cycle litterature. This paper represent the first attemp of a welfare-based monetary policy evaluation in a model with heterogeneous agents and households' credit constraints. In order to evaluate optimal monetary policy we take advantage of the recent advances in computational economics by following the approach illustrated by Schmitt-Grohe and Uribe (2003).

Pages: 19
Date: 2004-12
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Citations: View citations in EconPapers (9)

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Working Paper: Credit Frictions, Housing Prices and Optimal Monetary Policy Rules (2005)
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