TY - JOUR
T1 - Financial factors and monetary policy: Determinacy and learnability of equilibrium
AU - Kitney, Paul
PY - 2018
Y1 - 2018
N2 - 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.
AB - 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.
U2 - 10.1016/j.jedc.2018.01.044
DO - 10.1016/j.jedc.2018.01.044
M3 - Article
SN - 0165-1889
VL - 90
SP - 194
EP - 207
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
ER -