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The Monetary Policy Implications of Behavioral Asset Bubbles
Author(s) -
Gwilym Rhys ap
Publication year - 2013
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-2011.242
Subject(s) - asset (computer security) , economics , monetary policy , welfare , capital asset pricing model , general equilibrium theory , dynamic stochastic general equilibrium , consumption based capital asset pricing model , microeconomics , monetary economics , financial economics , computer science , market economy , computer security
I introduce behavioral asset pricing rules into a wider dynamic stochastic general equilibrium framework. Asset price bubbles emerged endogenously within the model. I find that in this model monetary policy rules that target the mispricing of the asset have a destabilizing effect; however, a monetary policy rule that targets deviations in the price of the asset from its trend can be welfare enhancing. Such a rule would also have the benefit of being straightforward to implement.