Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/1306

TitleMonetary policy, investment and non-fundamental shocks
Author(s)Alexandre, Fernando
KeywordsInvestment
Asset prices
Inflation targeting
Taylor rule
Rational expectations
Issue date2002
Series/Report no.Working paper series / NIPE
6
Abstract(s)Using a sticky price model with endogenous investment and adjustment costs we analyse the benefits of monetary policy reacting to asset prices, when investment is under the influence of a non-fundamental shock, both for inflation-forecast targeting rules and for Taylor rules. We conclude that in this context there are benefits from reacting to asset prices that result from a more stable output gap, which is the consequence of a much lower volatility in firms’ investment. However, welfare gains depend on the source of asset price movements. Reacting to asset prices when there is a non-fundamental shock to investment stabilises both the asset price and inflation.
TypeWorking paper
URIhttp://hdl.handle.net/1822/1306
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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