Department of Economics and Business - Universitat Pompeu Fabra

Title:: Monetary policy and bubbles in a new Keynesian model with overlapping generations
Author:: Jordi Galí
Date:: December 2016 (Revised: January 2020)
Abstract:: I analyze an extension of the New Keynesian model that features overlapping generations of Önitely-lived agents. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I examine the conditions under which bubbly equilibria may emerge and some of the implications for monetary policy. Monetary policies that lean against the bubble are shown to be potentially destabilizing, and likely to be dominated by ináation targeting policies
Keywords:: Monetary policy rules, stabilization policies, asset price volatility
JEL codes:: E44, E52
Area of Research:: Macroeconomics and International Economics
Published in:: American Economic Journal: Macroeconomics, 13(2), 2021, 121-167

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