Monetary policy and stock-price dynamics in a DSGE framework

► I introduce real effects of stock-price (SP) fluctuations in a small scale DSGE model. ► Price Stability requires a dedicated response to SP fluctuations due to demand shocks. ► It does not, however, if SP fluctuations are due to supply shocks. ► Taylor-rules responding to SP levels raise the chances of sunspot-driven fluctuations. ► TR responding to SP growth, instead, do not and may imply substantial stability gains.