In this paper the authors present a New Keynesian quantitative model with endogenous investment and stock-market sector that may shed further light on two unsettled issues: whether central banks should include some financial indicator in their policy rules, and which indicator may be expected to...

In this paper, the authors present a New Keynesian quantitative model with endogenous investment and a stock-market sector to shed further light on two unsettled issues: whether central banks should include some financial indicator in their policy rules, and what indicator may be expected to...

Should the central bank prevent "excessive" asset price dynamics or should it wait until the boom spontaneously turns into a crash and intervene only afterwards? The debate over this issue goes back at least to the exchange between Bernanke-Gertler (BG) and Cecchetti but has not settled yet. In...

We estimate forward-looking interest rate reaction functions in the spirit of Taylor (1993) for four major central banks augmented by implicit volatilities of stock market indices to proxy financial market stress. Our results suggest that the Bank of England, the Federal Reserve Bank and the...