TY  - BOOK
AU  - Bordo,Michael D.
AU  - Jeanne,Olivier
ED  - National Bureau of Economic Research.
TI  - Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy
T2  - NBER working paper series
PY  - 2002///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - May 2002; Hardcopy version available to institutional subscribers
N2  - The link between monetary policy and asset price movements has been of perennial interest to policy makers. In this paper we consider the potential case for pre-emptive monetary restrictions when asset price reversals can have serious effects on real output. First, we provide some historical background on two famous asset price reversals: the U.S. stock market crash of 1929 and the bursting of the Japanese bubble in 1989. We then present some stylized facts on boom-bust dynamics in stock and property prices in developed economies. We then discuss the case for a pre-emptive monetary policy in the context of a stylized 'Dynamic New Keynesian' framework with collateral constraints in the productive sector. We find that whether such a policy is warranted depends on the economic conditions in a complex, non-linear way. The optimal policy cannot be summarized by a simple policy rule of the type considered in the inflation-targeting literature
UR  - https://www.nber.org/papers/w8966
UR  - http://dx.doi.org/10.3386/w8966
ER  -