This paper develops a framework to study general equilibrium implications for an economy in which agents are allowed to have dynamically inconsistent time and risk preferences. This framework accommodates, but is not limited to, the following settings: (1) non-exponential discounting; (2)...

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 interest rates aggressively enough. This result is different...

The paper models the links between financial fragility, asset markets and monetary policy. It is shown that central bank's concern about the cost of financial disruption generates an asymmetric response, thus contributing to the creation of an asset price bubble. In an economy with a highly...