Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations / Jordi Galí.

By:

Galí, Jordi

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w26796.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: I analyze an extension of the New Keynesian model that features overlapping generations of finitely-lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model's welfare implications.

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Previous	nber w26793 The Financial Center Leverage Cycle: Does it Spread Around the World? /	nber w26794 Intertemporal Price Discrimination in Sequential Quantity-Price Games /	nber w26795 Random-Coefficients Logit Demand Estimation with Zero-Valued Market Shares /	nber w26796 Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations /	nber w26797 Uncovered Interest Parity, Forward Guidance, and the Exchange Rate /	nber w26798 Global Macro-Financial Cycles and Spillovers /	nber w26799 The Secured Credit Premium and the Issuance of Secured Debt /	Next

February 2020.

I analyze an extension of the New Keynesian model that features overlapping generations of finitely-lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model's welfare implications.