Christiano et al. (2005) have shown that a standard medium-sized DSGE model can successfully replicate VAR IRFs to a money supply shock. This important result vanishes under limited asset market partic- ipation. Further, even a moderate fraction of constrained consumers is su¢ cient to dampen...

We reconsider the issue of equilibrium determinacy under the limited asset market participation hypothesis in a medium-scale model which accounts for external consumption habits. This allows to characterize concern for relative consumption in the preferences of agents which are heterogeneous in...

We show that the combination rule-of-thumb consumers and consump- tion habits dramatically aspects the dynamic performance of DSGE mod- els, resurrecting Bilbiie's (2008) inverted Taylor principle. Another origi- nal contribution of the paper is the analysis of optimal operational simple rules...

When the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage...

By introducing external consumption habits and Limited Asset Market Participation in an otherwise standard New Keynesian DSGE model we uncover a causality link between limited asset market participation, consumption inequality and macroeconomic volatility. We also obtain that monetary...

Following a seminal contribution by Bilbiie (2008), the Limited Asset Market Participation hypothesis has triggered a debate on DSGE models determinacy when the central bank implements a standard Taylor rule. We reconsider the issue here in the context of an exogenous money supply rule,...