Soft landing in a Markov-switching economy |
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| Authors: | Fernando Alexandre Pedro Bação Vasco Gabriel |
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| Affiliation: | 1. NIPE and University of Minho, Portugal;2. GEMF and University of Coimbra, Portugal;3. NIPE and University of Surrey, United Kingdom;1. College of Science, Hunan Agricultural University, Changsha 410128, China;2. College of Information Science and Engineering, Jishou University, Jishou 416000, China;3. Agricultural Information Institute, Hunan Agricultural University, Changsha 410128, China;1. Department of Economics, University of Macedonia, Thessaloniki, Greece;2. Department of Economics, University of Macedonia, Thessaloniki, Greece;1. Department of Graphics Engineering and Geomatics, Gregor Mendel Building (3rd floor), Campus Rabanales, University of Córdoba, 14071–Córdoba, Spain;2. Department of Food Hygiene and Technology, Darwin Building, Campus Rabanales, University of Córdoba, 14071–Córdoba, Spain;3. Department of Computing and Numerical Analysis, Leonardo da Vinci Bulding, Campus Rabanales, University of Córdoba, 14071–Córdoba, Spain;1. ISEG (School of Economics and Management) of Universidade Técnica de Lisboa, Rua do Quelhas 6, 1200-781 Lisboa, Portugal;2. UECE (Research Unit on Complexity and Economics), Rua Miguel Lupi 20, 1249-078 Lisboa, Portugal;3. Cardiff Business School, Aberconway Building, Column Drive, Cardiff CF10 3EU, United Kingdom;1. Institute of Financial Mathematics, School of Science, Beijing Jiaotong University, Beijing 100044, PR China;2. Institute of Financial Engineering, School of Science, Beijing Jiaotong University, Beijing 100044, PR China;3. Center for Polymer Studies and Department of Physics, Boston University, Boston, MA 02215, USA |
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| Abstract: | We analyse the monetary policy implications of boom–bust cycles in asset prices using a Markov-switching rational expectations model. In our simulations, when a bubble bursts, the Taylor rule fails to achieve a soft landing, contrary to the optimal policy. |
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