Working Paper
Monetary policy and stock market booms
Abstract: Historical data and model simulations support the following conclusion: Inflation is low during stock market booms, so an interest rate rule that is too narrowly focused on inflation destabilizes asset markets and the broader economy. Adjustments to the interest rate rule can remove this source of welfare-reducing instability. For example, allowing an independent role for credit growth (beyond its role in constructing the inflation forecast) would reduce the volatility of output and asset prices.
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Bibliographic Information
Provider: Federal Reserve Bank of Atlanta
Part of Series: FRB Atlanta CQER Working Paper
Publication Date: 2010
Number: 2010-08