Monetary Policy and Asset Price Bubbles: A Nonlinear Policy Rule
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Monetary Policy and Asset Price Bubbles: A Nonlinear Policy Rule
Credit and Capital Markets – Kredit und Kapital, Vol. 49 (2016), Iss. 4 : pp. 507–514
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Dr. Alexander Mislin, Federal Ministry of Finance, Wilhelmstraße 97, 10117 Berlin, Germany, currently delegated to the German Bundestag, Platz der Republik 1, 11011 Berlin, Germany
Abstract
The recent debate about asset price bubbles and monetary policy in view of „leaning against the wind" is controversial in economic literature. In this paper we argue that depending on the circumstances there is space for the central bank to lean against financial imbalances. With an optimal bounded control problem in continuous time we have developed an augmented nonlinear Taylor Rule. The main advantage of our formulation is its much greater analytical tractability, which produces distinct results. Even under the assumption of nonlinearities the central bank is in a position to move the interest rate above a threshold value to provide financial stability.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Alexander Mislin: Monetary Policy and Asset Price Bubbles: A Nonlinear Policy Rule | 1 |