Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173267
Authors: 
Boehl, Gregor
Year of Publication: 
2017
Series/Report no.: 
IMFS Working Paper Series 119
Abstract: 
Financial market interactions can lead to large and persistent booms and recessions. Instability is an inherent threat to economies with speculative financial markets. A central bank's interest rate setting can amplify the expectation feedback in the financial market and this can lead to unstable dynamics and excess volatility. The paper suggests that policy institutions may be well-advised to handle tools like asset price targeting with care since such instruments might add a structural link between asset prices and macroeconomic aggregates. Neither stock prices nor indices are a good indicator to base decisions on.
Subjects: 
monetary policy
asset pricing
nonlinearity
heterogeneous expectations
credit constraints
JEL: 
E44
E52
E03
C63
Document Type: 
Working Paper
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