Premium
ASSET PRICES, OUTPUT AND MONETARY POLICY IN A SMALL OPEN ECONOMY
Author(s) -
Malikane Christopher,
Semmler Willi
Publication year - 2008
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.2008.00340.x
Subject(s) - economics , asset (computer security) , interest rate , small open economy , monetary policy , order (exchange) , exchange rate , macro , wage , monetary economics , macroeconomics , econometrics , finance , market economy , computer security , computer science , programming language
We formulate a macro‐model of a small open economy in order to investigate the relative performance of rules that respond to asset prices and those that do not. Our model consists of three asset prices: the stock price, the long‐term interest rate and the exchange rate. These asset prices interact with nominal wage and price Phillips curves, a law of motion for the labour share, a dynamic IS curve that describes output adjustment and a Taylor‐type interest rate policy rule. Estimations of the model show that policy rules that respond to asset price movements dominate rules that do not.