Fighting against currency depreciation, macroeconomic instability and sudden stops
In: International finance discussion papers 848
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In: International finance discussion papers 848
In: IMF Working Paper No. 15/33
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In: Journal of economic dynamics & control, Band 36, Heft 10, S. 1566-1584
ISSN: 0165-1889
In: IMF Working Paper No. 12/121
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In: IMF Working Papers, S. 1-45
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In: IMF Working Papers v.Working Paper No. 15/16
We explore the stability properties of interest rate rules granting an explicit response to stock prices in a New-Keynesian DSGE model populated by Blanchard-Yaari non-Ricardian households. The constant turnover between long-time stock holders and asset-poor newcomers generates a financial wealth channel where the wedge between current and expected future aggregate consumption is affected by the market value of financial wealth, making stock prices non-redundant for the business cycle. We find that if the financial wealth channel is sufficiently strong, responding to stock prices enlarges the policy space for which the rational expectations equilibrium is both determinate and learnable (in the E-stability sense of Evans and Honkapohja, 2001). In particular, the Taylor principle ceases to be necessary and also mildly passive policy responses to inflation lead to determinacy and E-stability. Our results appear to be more prominent in economies characterized by a lower elasticity of substitution across differentiated products and/or more rigid labor markets.--Abstract
In: IMF Working Paper No. 19/62
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Working paper
In: IMF Working Paper No. 15/16
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In: World development: the multi-disciplinary international journal devoted to the study and promotion of world development, Band 69, S. 116-129
In: IMF Working Paper No. 14/18
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Working paper
In: Journal of Monetary Economics, Band 97, S. 117-148
In: IMF Working Paper No. 18/116
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In: IMF Working Paper No. 16/55
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In: World development: the multi-disciplinary international journal devoted to the study and promotion of world development, Band 69, S. 44-61
In: IMF Working Papers, S. 1-39
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