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  4. May 2019
  5. Monetary Policy and Rational Asset Price Bubbles: Comment

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Monetary Policy and Rational Asset Price Bubbles: Comment

  • Jianjun Miao
  • Zhouxiang Shen
  • Pengfei Wang
American Economic Review
vol. 109, no. 5, May 2019
(pp. 1969–90)
See also: Original paper by Galí (2014)

 

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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.20180145

Additional 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