The Monetary Policy Implications of Behavioral Asset Bubbles |
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Authors: | Rhys ap Gwilym |
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Institution: | Bangor University, Bangor Business School, Hen Goleg, Bangor, Gwynedd LL57 2DG, Wales, UK |
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Abstract: | I introduce behavioral asset pricing rules into a wider dynamic stochastic general equilibrium framework. Asset price bubbles emerged endogenously within the model. I find that in this model monetary policy rules that target the mispricing of the asset have a destabilizing effect; however, a monetary policy rule that targets deviations in the price of the asset from its trend can be welfare enhancing. Such a rule would also have the benefit of being straightforward to implement. |
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Keywords: | E10 E30 E52 |
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