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Monetary Policy and Asset Prices: Does "Benign Neglect" Make Sense?
Author:
Mr. Olivier D Jeanne
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and
Michael D. Bordonull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2002: Issue 225
Language:
English
Publication Date:
01 Dec 2002
DOI:
https://doi.org/10.5089/9781451875362.001
ISBN:
9781451875362
ISSN:
1018-5941
Pages:
27
Keywords:
WP; asset price; moving average; price level; Monetary policy; asset prices; credit crunch; Taylor rule; bubbles; new economy; asset market boom; proactive monetary policy; share price; Asset prices; Land prices; Price indexes; Credit; Business cycles
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The link between monetary policy and asset price movements has been of perennial interest to policymakers. In this paper, we consider the potential case for preemptive monetary restrictions when asset price reversals can have serious effects on real output. First, we present some stylized facts on boom-bust dynamics in stock and property prices in developed economies. We then discuss the case for a preemptive monetary policy in the context of a stylized model. We find that the optimal policy depends on the economic conditions in a complex, nonlinear way and cannot be summarized by a simple policy rule of the type considered in the inflation-targeting literature.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2002: Issue 225