Asset Prices and Optimal Monetary Policy
San Francisco State University
10th January, 2017 (Tuesday) at 3:00 PM
Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics
All are cordially invited
We construct a New Keynesian DSGE model that features financial frictions, investment frictions, long-run productivity risk and Epstein and Zin (1989) preferences. The model successfully reproduces key features of both asset prices and macroeconomic quantities such as consumption, investment, and output. Under this set up, we examine the implications of different monetary policy rules where the central bank responds to inflation, output and asset prices in the presence of productivity shocks, monetary policy shocks and financial shocks. This paper contributes to the current debate on how central bankers ought to respond to asset price volatility, in the context of an overall strategy for monetary policy.