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Monetary policy, stock prices, and consumption externalities

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  • Airaudo, Marco

Abstract

We study interest rate rules responding to stock prices in a sticky-price sticky-wage New-Keynesian framework subject to consumption externalities. For given wage rigidity, such rules are beneficial to equilibrium determinacy if households’ preferences feature sufficiently strong keeping-up-with-the-Joneses externalities.

Suggested Citation

  • Airaudo, Marco, 2013. "Monetary policy, stock prices, and consumption externalities," Economics Letters, Elsevier, vol. 120(3), pages 537-541.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:537-541
    DOI: 10.1016/j.econlet.2013.06.015
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    More about this item

    Keywords

    Consumption externalities; New-Keynesian model; Stock prices; Monetary policy; Determinacy;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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