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Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations†

Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations† AbstractI analyze an extension of the New Keynesian model that features overlapping generations of finitely lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model’s welfare implications. (JEL E12, E32, E44, E52, E63) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations†

Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations†

American Economic Journal: Macroeconomics , Volume 13 (2) – Apr 1, 2021

Abstract

AbstractI analyze an extension of the New Keynesian model that features overlapping generations of finitely lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model’s welfare implications. (JEL E12, E32, E44, E52, E63)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20180427
Publisher site
See Article on Publisher Site

Abstract

AbstractI analyze an extension of the New Keynesian model that features overlapping generations of finitely lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model’s welfare implications. (JEL E12, E32, E44, E52, E63)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Apr 1, 2021

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