Monetary Policy and Rational Asset Price Bubbles: Comment
- (pp. 1969-90)
Abstract
We revisit Galí’s (2014) analysis by extending his model to incorporate persistent bubble shocks. We find that, under adaptive learning, a stable bubbly steady state and the associated sunspot solutions under optimal monetary policy are not E-stable. When deriving the unique forward-looking minimum stable variable (MSV) solution around an unstable bubbly steady state, we obtain results that are consistent with the conventional views: leaning against the wind policy reduces bubble volatility and is optimal. Such a steady state and the associated MSV solution are E-stable.Citation
Miao, Jianjun, Zhouxiang Shen, and Pengfei Wang. 2019. "Monetary Policy and Rational Asset Price Bubbles: Comment." American Economic Review, 109 (5): 1969-90. DOI: 10.1257/aer.20180145Additional Materials
JEL Classification
- E13 General Aggregative Models: Neoclassical
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- G12 Asset Pricing; Trading Volume; Bond Interest Rates