Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104967
Authors: 
Lengnick, Matthias
Wohltmann, Hans-Werner
Year of Publication: 
2014
Series/Report no.: 
Economics Working Paper, Christian-Albrechts-Universität Kiel, Department of Economics 2014-12
Abstract: 
This paper relates to the literature on macro-finance-interaction models. We modify the boundedly rational New Keynesian model of De Grauwe (2010a) using a completely microfounded IS equation, and combine it with the agent-based financial market model of Westerhoff (2008). For this purpose we derive four interactive channels between the financial and real sector where two channels are strictly microfounded. We analyze the impact of the different channels on economic stability and derive optimal (simple) monetary policy rules. We find that coefficients of optimal simple Taylor rules do not significantly change if financial market stabilization becomes part of the central bank's objective function. Additionally, we show that rule-based, backward-looking monetary policy creates huge instabilities if expectations are boundedly rational.
Subjects: 
agent-based financial markets
New Keynesian macroeconomics
microfoundation
optimal monetary policy
unconventional monetary policy
JEL: 
E03
E5
G02
Document Type: 
Working Paper

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