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New Perspectives on Asset Price Bubbles$
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Douglas D. Evanoff, George G. Kaufman, and A. G. Malliaris

Print publication date: 2012

Print ISBN-13: 9780199844333

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780199844333.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 24 July 2021

Monetary Policy and Asset Price Volatility

Monetary Policy and Asset Price Volatility

Chapter:
(p.173) Chapter 6 Monetary Policy and Asset Price Volatility
Source:
New Perspectives on Asset Price Bubbles
Author(s):

Ben Bernanke

Mark Gertler

Publisher:
Oxford University Press
DOI:10.1093/acprof:osobl/9780199844333.003.0006

This chapter examines the volatility of asset price bubbles and its implications for monetary policy. It first considers how asset prices interact with the real economy before expanding the financial accelerator model by incorporating exogenous bubbles in asset prices. It then explores how an asset bubble affects real activity via the wealth effect on consumption and firms' financial decisions via appreciations of assets on the balance sheet. Using stochastic simulations, it suggests that central banks should view price stability and financial stability as highly complementary and that central bank policies should not respond to changes in asset prices, except insofar as they signal changes in expected goods and services inflation.

Keywords:   asset price bubbles, monetary policy, asset prices, real economy, financial accelerator model, balance sheet, central banks, price stability, financial stability, inflation

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