We show that the spread-adjusted Taylor rule including a response to the credit spread is a theoretically optimal monetary policy under heterogeneous loan contracts. However, the optimal response to the credit spread is ambiguous, given the financial market structure.

This paper evaluates professional forecasters’ behavior using a panel data of individual forecasts. We find that (i) professional forecasts are behavioral, and (ii) there exists a stock–bond dissonance: the forecasting behavior seems to be stubborn in the stock market, but jumpy in the bond...