Asset prices in monetary policy rules: should they stay or should they go?
Autor(a) principal: | |
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Data de Publicação: | 2008 |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/11328/408 |
Resumo: | The nature of the relationship between asset price movements and monetary policy is a currently hotly debated topic in macroeconomics. We analyse that relationship using a standard dynamic stochastic general equilibrium model, augmented by an equation featuring the asset prices deviations from a trend value. The calibration and subsequent simulation of that model allows us to conclude that it wouldn’t be desirable to include asset prices in the monetary policy rule, because of the higher interest rate and inflation volatility. The inclusion of a reaction to asset prices deviations in the monetary policy rule would only be justifiable in the context of a strong output gap sensibility to them and, even in that case, the gains of welfare would be so small that shouldn’t offset the costs attached to an explicit tracking of asset prices behaviour by the monetary authority. In conclusion, our results are consistent with a benign neglect view by the monetary authority towards asset prices. This attitude, where the ECB clearly fits in, implies that central banks could act in response to asset prices movements when there’s the need to avoid a sharp correction in the markets, which could have destabilising effects over the economy. |
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Asset prices in monetary policy rules: should they stay or should they go?Monetary policy rulesAsset pricesDSGE modelsEuropean Central BankThe nature of the relationship between asset price movements and monetary policy is a currently hotly debated topic in macroeconomics. We analyse that relationship using a standard dynamic stochastic general equilibrium model, augmented by an equation featuring the asset prices deviations from a trend value. The calibration and subsequent simulation of that model allows us to conclude that it wouldn’t be desirable to include asset prices in the monetary policy rule, because of the higher interest rate and inflation volatility. The inclusion of a reaction to asset prices deviations in the monetary policy rule would only be justifiable in the context of a strong output gap sensibility to them and, even in that case, the gains of welfare would be so small that shouldn’t offset the costs attached to an explicit tracking of asset prices behaviour by the monetary authority. In conclusion, our results are consistent with a benign neglect view by the monetary authority towards asset prices. This attitude, where the ECB clearly fits in, implies that central banks could act in response to asset prices movements when there’s the need to avoid a sharp correction in the markets, which could have destabilising effects over the economy.Centro de Investigação em Gestão e Economia da Universidade Portucalense2013-08-16T11:56:14Z2008-01-01T00:00:00Z2008info:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/11328/408engPacheco, Luís Miguelinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-06-15T02:08:39ZPortal AgregadorONG |
dc.title.none.fl_str_mv |
Asset prices in monetary policy rules: should they stay or should they go? |
title |
Asset prices in monetary policy rules: should they stay or should they go? |
spellingShingle |
Asset prices in monetary policy rules: should they stay or should they go? Pacheco, Luís Miguel Monetary policy rules Asset prices DSGE models European Central Bank |
title_short |
Asset prices in monetary policy rules: should they stay or should they go? |
title_full |
Asset prices in monetary policy rules: should they stay or should they go? |
title_fullStr |
Asset prices in monetary policy rules: should they stay or should they go? |
title_full_unstemmed |
Asset prices in monetary policy rules: should they stay or should they go? |
title_sort |
Asset prices in monetary policy rules: should they stay or should they go? |
author |
Pacheco, Luís Miguel |
author_facet |
Pacheco, Luís Miguel |
author_role |
author |
dc.contributor.author.fl_str_mv |
Pacheco, Luís Miguel |
dc.subject.por.fl_str_mv |
Monetary policy rules Asset prices DSGE models European Central Bank |
topic |
Monetary policy rules Asset prices DSGE models European Central Bank |
description |
The nature of the relationship between asset price movements and monetary policy is a currently hotly debated topic in macroeconomics. We analyse that relationship using a standard dynamic stochastic general equilibrium model, augmented by an equation featuring the asset prices deviations from a trend value. The calibration and subsequent simulation of that model allows us to conclude that it wouldn’t be desirable to include asset prices in the monetary policy rule, because of the higher interest rate and inflation volatility. The inclusion of a reaction to asset prices deviations in the monetary policy rule would only be justifiable in the context of a strong output gap sensibility to them and, even in that case, the gains of welfare would be so small that shouldn’t offset the costs attached to an explicit tracking of asset prices behaviour by the monetary authority. In conclusion, our results are consistent with a benign neglect view by the monetary authority towards asset prices. This attitude, where the ECB clearly fits in, implies that central banks could act in response to asset prices movements when there’s the need to avoid a sharp correction in the markets, which could have destabilising effects over the economy. |
publishDate |
2008 |
dc.date.none.fl_str_mv |
2008-01-01T00:00:00Z 2008 2013-08-16T11:56:14Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/11328/408 |
url |
http://hdl.handle.net/11328/408 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Centro de Investigação em Gestão e Economia da Universidade Portucalense |
publisher.none.fl_str_mv |
Centro de Investigação em Gestão e Economia da Universidade Portucalense |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
instname_str |
Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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1777302546894815232 |