We study the design of monetary policy in an economy characterized by staggered wage and price contracts together with limited asset market participation (LAMP). Contrary to previous results, we nd that once nominal wage stickiness, an incontrovertible empirical fact, is considered: i) the Taylor Principle is restored as a necessary condition for equilibrium determinacy for any empirically plausible degree of LAMP; ii) the effect of LAMP for the design of optimal monetary policy are minor; iii) optimal interest rate rules become active no matter the degree of asset market participation. For these reasons we argue that LAMP does not fundamentally affect the design of monetary policy

Ascari, G., Colciago, A., Rossi, L. (2011). Limited asset market participation: does it really matter for monetary policy? [Working paper].

Limited asset market participation: does it really matter for monetary policy?

COLCIAGO, ANDREA;
2011

Abstract

We study the design of monetary policy in an economy characterized by staggered wage and price contracts together with limited asset market participation (LAMP). Contrary to previous results, we nd that once nominal wage stickiness, an incontrovertible empirical fact, is considered: i) the Taylor Principle is restored as a necessary condition for equilibrium determinacy for any empirically plausible degree of LAMP; ii) the effect of LAMP for the design of optimal monetary policy are minor; iii) optimal interest rate rules become active no matter the degree of asset market participation. For these reasons we argue that LAMP does not fundamentally affect the design of monetary policy
Working paper
No
Scientifica
optimal monetary policy, sticky wages, non-Ricardian household, determi- nacy, optimal simple rules.
English
Ascari, G., Colciago, A., Rossi, L. (2011). Limited asset market participation: does it really matter for monetary policy? [Working paper].
Ascari, G; Colciago, A; Rossi, L
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/44683
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