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Learning, Monetary Policy and Asset Prices

2015-01-23 Business & Economics
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Release : 2015-01-23
Genre : Business & Economics
Kind : eBook
Book Rating : 465/5 ( reviews)

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Book Synopsis Learning, Monetary Policy and Asset Prices by : Mr.Marco Airaudo

Download or read book Learning, Monetary Policy and Asset Prices written by Mr.Marco Airaudo. This book was released on 2015-01-23. Available in PDF, EPUB and Kindle. Book excerpt: We explore the stability properties of interest rate rules granting an explicit response to stock prices in a New-Keynesian DSGE model populated by Blanchard-Yaari non-Ricardian households. The constant turnover between long-time stock holders and asset-poor newcomers generates a financial wealth channel where the wedge between current and expected future aggregate consumption is affected by the market value of financial wealth, making stock prices non-redundant for the business cycle. We find that if the financial wealth channel is sufficiently strong, responding to stock prices enlarges the policy space for which the rational expectations equilibrium is both determinate and learnable (in the E-stability sense of Evans and Honkapohja, 2001). In particular, the Taylor principle ceases to be necessary and also mildly passive policy responses to inflation lead to determinacy and E-stability. Our results appear to be more prominent in economies characterized by a lower elasticity of substitution across differentiated products and/or more rigid labor markets.

Asset Prices and Monetary Policy

2008-11-15 Business & Economics
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Release : 2008-11-15
Genre : Business & Economics
Kind : eBook
Book Rating : 127/5 ( reviews)

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Book Synopsis Asset Prices and Monetary Policy by : John Y. Campbell

Download or read book Asset Prices and Monetary Policy written by John Y. Campbell. This book was released on 2008-11-15. Available in PDF, EPUB and Kindle. Book excerpt: Economic growth, low inflation, and financial stability are among the most important goals of policy makers, and central banks such as the Federal Reserve are key institutions for achieving these goals. In Asset Prices and Monetary Policy, leading scholars and practitioners probe the interaction of central banks, asset markets, and the general economy to forge a new understanding of the challenges facing policy makers as they manage an increasingly complex economic system. The contributors examine how central bankers determine their policy prescriptions with reference to the fluctuating housing market, the balance of debt and credit, changing beliefs of investors, the level of commodity prices, and other factors. At a time when the public has never been more involved in stocks, retirement funds, and real estate investment, this insightful book will be useful to all those concerned with the current state of the economy.

Learning, Monetary Policy and Asset Prices

2012
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Release : 2012
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Book Synopsis Learning, Monetary Policy and Asset Prices by : Alberto Locarno

Download or read book Learning, Monetary Policy and Asset Prices written by Alberto Locarno. This book was released on 2012. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation examines several policy-related implications of relaxing the assumption that economic agents are guided by rational expectations. A first, introductory chapter presents the main technical issues related to adaptive learning. The second chapter studies the implications for monetary policy of positing that both the private sector and the central bank form their expectations through adaptive learning and that the central bank has private information on shocks to the economy but cannot credibly commit. The main finding of this chapter is that when agents learn adaptively a bias against activist policy arises. The following chapter focuses on large, non-linear models, where no unambiguous linear approximation eligible as perceived law of motion exists. Accordingly, there are heterogeneous expectations and the system converges to a misspecification equilibrium, affected by the communication strategies of the central bank. The main results are: (1) the heterogeneity of expectations persists even when a large number of observations are available; (2) the monetary policymaker has no incentive to be an inflation hawk; (3) partial transparency enhances welfare somewhat but full transparency does not. The final chapter adopts a model in which agents are fully informed and use Bayesian techniques to estimate the hidden states of the economy. The monetary policy stance is unobservable and state-independent, generating uncertainty among agents, who try to gauge it from inflation: a change in consumer prices that confirms beliefs reduces stock risk premia, while a change that contradicts beliefs drives the risk premia upward. This may generate a negative correlation between returns and inflation that explains the Fisher puzzle. The model is tested on US data. The econometric evidence suggests: (1) that a mimickingportfolio proxying for monetary policy uncertainty is a risk factor priced by financial markets; and (2) that conditioning on monetary uncertainty and fundamentals eliminates the Fisher puzzle.

The Role of Learning for Asset Prices, Business Cycles, and Monetary Policy

2016
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Release : 2016
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Book Synopsis The Role of Learning for Asset Prices, Business Cycles, and Monetary Policy by : Fabian Winkler

Download or read book The Role of Learning for Asset Prices, Business Cycles, and Monetary Policy written by Fabian Winkler. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt:

Expectations, Asset Prices, and Monetary Policy

2006 Asset allocation
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Release : 2006
Genre : Asset allocation
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Book Synopsis Expectations, Asset Prices, and Monetary Policy by : Simon Gilchrist

Download or read book Expectations, Asset Prices, and Monetary Policy written by Simon Gilchrist. This book was released on 2006. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the implications of financial market imperfections represented by a countercyclical external finance premium and the gradual recognition of changes in the drift of technology growth for the design of an interest rate rule. Asset price movements induced by changes in trend growth influence balance-sheet conditions that determine the external finance premium. Such movements are magnified when the private sector is imperfectly informed regarding the trend growth rate of technology. The presence of financial market imperfections provides a motivation for responding to the gap between the observed asset prices and the potential level of asset prices in addition to responding strongly to inflation. This is because the asset price gap represents distortions in the resource allocation induced by financial market imperfections more distinctly than inflation . The policymaker's imperfect information about the drift of technology growth renders imprecise the calculation of potential and thus reduces the benefit of responding to the asset price gap. A policy that responds to the level of asset prices which does not take into account changes in potential tends to be welfare reducing.--Publisher's description.

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