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Galí (2014) showed that a monetary policy rule that raises interest rates in response to bubbles can paradoxically lead … to larger bubbles. This comment shows that a central bank that wants to dampen bubbles can always do so by raising … argue Galí's model contains additional equilibria in which more aggressive rules dampen bubbles. We show that for these …
Persistent link: https://www.econbiz.de/10014349449
bubbles. For this we posit an overlapping generation model where productivity and credit supply are subject to random shocks …. We find that when real interest rates are lower than the rate of growth, credit financed bubbles may be welfare improving …
Persistent link: https://www.econbiz.de/10012846053
’ heterogeneity and rational bubbles, and their normative implications for monetary policy. Heterogeneity stems from idiosyncratic … uncertainty related to participation in the asset and labor markets, and allows bubbles to emerge in equilibrium despite the fact …-policy response to bubbles, however, depends on the features of the latter …
Persistent link: https://www.econbiz.de/10013403729
We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for...
Persistent link: https://www.econbiz.de/10012842965
The turn of century long period of sustained growth with low and stable inflation let the economic profession and the public opinion to think that the right theoretical foundation for macroeconomic policy had been found. However the Great Crisis of 2008 indicates a spectacular failure of this...
Persistent link: https://www.econbiz.de/10013056398
We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for...
Persistent link: https://www.econbiz.de/10012154622
Autonomous demand shock affects consumption spending. Variation in consumption spending contributes to the volatility in aggregate demand. As the investor is risk averse, volatility of aggregate demand reduces investment. Government injects monetary noise to reduce the volatility in aggregate...
Persistent link: https://www.econbiz.de/10014158665
The neutral rate of interest is an important concept and communication tool for central banks. We develop a small open economy model with overlapping generations to study the determinants of the neutral real rate of interest in a small open economy. The model captures domestic factors such as...
Persistent link: https://www.econbiz.de/10014232633
This paper investigates quantitative significance of liquidity constraints for asset prices and monetary policy in a monetary economy version of Kiyotaki and Moore (2005). Motivated by the lack of commitment in the intertemporal asset trade, the model economy features limited resalability of...
Persistent link: https://www.econbiz.de/10012940648
Empirical evidence demonstrates that credit standards, including lending margins and collateral requirements, move in a countercyclical direction. In this study, we construct a small open economy model with financial frictions to generate the countercyclical movement in credit standards. Our...
Persistent link: https://www.econbiz.de/10012800343