Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/9205
Appears in Collections:Economics Journal Articles
Peer Review Status: Refereed
Title: Optimal monetary policy and asset price misalignments
Authors: Kontonikas, Alexandros
Montagnoli, Alberto
Contact Email: alberto.montagnoli@stir.ac.uk
Keywords: Monetary policy
Asset prices
Issue Date: Nov-2006
Publisher: Wiley-Blackwell
Citation: Kontonikas A & Montagnoli A (2006) Optimal monetary policy and asset price misalignments, Scottish Journal of Political Economy, 53 (5), pp. 636-654.
Abstract: This paper analyses the relationship between monetary policy and asset prices in the context of optimal policy rules. The transmission mechanism is represented by a linearized rational expectations model augmented for the effect of asset prices on aggregate demand. Stabilization objectives are represented by a discounted quadratic loss function penalizing inflation and output gap volatility. Asset prices are allowed to deviate from their intrinsic value due to momentum trading. We find that in the presence of wealth effects and inefficient markets, asset price misalignments from their fundamentals should be included in the optimal interest rate reaction function.
Type: Journal Article
URI: http://hdl.handle.net/1893/9205
DOI Link: http://dx.doi.org/10.1111/j.1467-9485.2006.00398.x
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.
Affiliation: University of Glasgow
Economics

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