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dc.contributor.authorGrossi, Micheleen_US
dc.contributor.authorTamborini, Robertoen_US
dc.description.abstractIn this paper, the authors present a New Keynesian quantitative model with endogenous investment and a stock-market sector to shed further light on two unsettled issues: whether central banks should include some financial indicator in their policy rules, and what indicator may be expected to generate better stabilization performance. For comparative purposes, the authors replicate the policy framework and assessment strategy of the well-known no-inclusion model of Bernanke-Gertler (1999, 2000) and assess performance of five policy rules. Two of these are traditional Taylor rules (i.e., do not incorporate financial indicators) that differ in the relative weight they put on output and inflation gaps. The other three are financial Taylor rules. These involve the addition of one financial indicator in each case. Specifically, the deviation from trend of stock prices, of Tobin's q (the rate of change in stock prices relative to capital stock) and of investment. The authors obtain results that are at variance with Bernanke-Gertler, first, because the best performing rule of the traditional rules is output aggressive instead of inflation aggressive and, second, because the financial rule with Tobin's q outperforms the traditional inflation-aggressive one under all dimensions and cases. However, the authors cannot draw a univocal conclusion as regards the comparison between the financial rule with Tobin's q and the traditional but output aggressive rule.en_US
dc.publisher|aKiel Institute for the World Economy (IfW) |cKielen_US
dc.relation.ispartofseries|aEconomics Discussion Papers |x2011-54en_US
dc.subject.keywordNew Keynesian modelsen_US
dc.subject.keywordmonetary policyen_US
dc.subject.keywordstock markets and bubblesen_US
dc.subject.stwNeukeynesianische Makroökonomiken_US
dc.subject.stwTobin's Qen_US
dc.titleStock prices and monetary policy: Re-examining the issue in a New Keynesian model with endogenous investmenten_US
dc.typeWorking Paperen_US

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