What Asset Prices Should Be Targeted by a Central Bank? | Zendy

NUTAHARA KENGO | Zendy

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What Asset Prices Should Be Targeted by a Central Bank?

Author(s) -

NUTAHARA KENGO

Publication year - 2014

Publication title -

journal of money, credit and banking

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.763

H-Index - 108

eISSN - 1538-4616

pISSN - 0022-2879

DOI - 10.1111/jmcb.12126

Subject(s) - determinacy , economics , asset (computer security) , monetary policy , monetary economics , indeterminacy (philosophy) , inflation (cosmology) , profit (economics) , capital (architecture) , basis risk , capital asset pricing model , financial economics , microeconomics , mathematical analysis , physics , mathematics , computer security , archaeology , quantum mechanics , theoretical physics , computer science , history

This paper investigates the monetary policy design for restoring equilibrium determinacy. Our interests are whether a central bank should respond to asset price fluctuations, and if so, what asset prices should be targeted. We show that a monetary policy response to the price of a productive tangible asset (capital price) is helpful for equilibrium determinacy, while that to the price of an intangible asset that reflects a firm's profit (share prices) is a source of equilibrium indeterminacy. This result comes from the two assets' prices moving in opposite directions in response to a permanent increase in inflation.

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