Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7358704 | Journal of Economic Dynamics and Control | 2018 | 28 Pages |
Abstract
We contribute to the debate on whether central banks should respond to financial factors in monetary policy rules, by evaluating equilibrium determinacy and E-stability in the presence of a financial accelerator. Policies responding to lagged asset prices either reduce the region of determinacy or E-stability in the parameter space. However, a response to current asset prices expands both regions of determinacy and E-stability. Policy rules reacting to credit volume constrict the determinacy region. Most policies responding to credit spreads expand determinacy and E-stability regions. We favor the inclusion of current asset prices or credit spreads in monetary policy rules.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Paul Kitney,