Should the central bank target asset price inflation? In their 1999 paper Bernanke and Gertler claimed that price stability and financial stability are “mutually consistent objectives” in a flexible inflation targeting regime which “dictates that central banks … should not respond to changes in asset prices.” This conclusion is straightforward within their framework in which asset price inflation shows up as a factor “augmenting” the IS curve. In this chapter, we pursue a different modeling strategy so that, in the end, asset price dynamics will be incorporated into the NK Phillips curve. We put ourselves, therefore, in the best position to obtain a significant stabilizing role for asset price targeting. It turns out, however, that inflation volatility is higher in the asset price targeting case. After all, therefore, targeting asset prices may not be a good idea.

Assenza, T., Berardi, M., Delli Gatti, D., Was Bernanke Right? Targeting Asset Prices May not be a Good Idea After All, in William A. Barnett, F. J. (ed.), Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons, Emerald Group Publishing Ltd, Bingley 2015: 451- 496. 10.1108/S1571-038620150000024025 [http://hdl.handle.net/10807/76269]

Was Bernanke Right? Targeting Asset Prices May not be a Good Idea After All

Assenza, Tiziana
Primo
;
Berardi, Michele
Secondo
;
Delli Gatti, Domenico
Ultimo
2015

Abstract

Should the central bank target asset price inflation? In their 1999 paper Bernanke and Gertler claimed that price stability and financial stability are “mutually consistent objectives” in a flexible inflation targeting regime which “dictates that central banks … should not respond to changes in asset prices.” This conclusion is straightforward within their framework in which asset price inflation shows up as a factor “augmenting” the IS curve. In this chapter, we pursue a different modeling strategy so that, in the end, asset price dynamics will be incorporated into the NK Phillips curve. We put ourselves, therefore, in the best position to obtain a significant stabilizing role for asset price targeting. It turns out, however, that inflation volatility is higher in the asset price targeting case. After all, therefore, targeting asset prices may not be a good idea.
Inglese
Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons
978-1784417802
Emerald Group Publishing Ltd
Assenza, T., Berardi, M., Delli Gatti, D., Was Bernanke Right? Targeting Asset Prices May not be a Good Idea After All, in William A. Barnett, F. J. (ed.), Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons, Emerald Group Publishing Ltd, Bingley 2015: 451- 496. 10.1108/S1571-038620150000024025 [http://hdl.handle.net/10807/76269]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/76269
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