Monetary Policy and Asset Prices: Does "Benign Neglect" Make Sense?

Author/Editor:

Olivier D Jeanne ; Michael D. Bordo

Publication Date:

December 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The link between monetary policy and asset price movements has been of perennial interest to policymakers. In this paper, we consider the potential case for preemptive monetary restrictions when asset price reversals can have serious effects on real output. First, we present some stylized facts on boom-bust dynamics in stock and property prices in developed economies. We then discuss the case for a preemptive monetary policy in the context of a stylized model. We find that the optimal policy depends on the economic conditions in a complex, nonlinear way and cannot be summarized by a simple policy rule of the type considered in the inflation-targeting literature.

Series:

Working Paper No. 2002/225

Subject:

Asset prices Business cycles Credit Economic growth Land prices Money Price indexes Prices

English

Publication Date:

December 1, 2002

ISBN/ISSN:

9781451875362/1018-5941

Stock No:

WPIEA2252002

Pages:

27

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