Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/203216 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
IES Working Paper No. 37/2018
Publisher: 
Charles University in Prague, Institute of Economic Studies (IES), Prague
Abstract: 
This research paper studies the performance of the Taylor-type rules augmented with output and asset prices, and compares their performance in a model with an eternally and occasionally binding constraint. The rules are examined under the optimisation of a central bank's loss function and a welfare maximisation of the economic agents. The analysis delivers the following results. The model with occasionally binding constraint has more favourable properties regarding the hump-shaped and asymmetric impulse responses compared to the eternally binding constraint model. The best rule regarding the lowest value of the central banks' loss function proves to be the rule augmented with asset prices. The optimal reactions are, however, shock- and model-dependent. Moreover, a chosen specification of the loss function plays a significant role. The welfare maximisation reveals that reacting to asset prices might not be welfare-improving for both types of economic agents - households and entrepreneurs. This result is, however, model-dependent.
Subjects: 
asset prices
DSGE
leaning-against-the-wind
monetary policy
nonlinearities
Taylor Rule
JEL: 
E30
E44
E50
Document Type: 
Working Paper

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