IDEAS home Printed from https://ideas.repec.org/p/wil/wileco/2011-04.html
   My bibliography  Save this paper

Monetary Policy and Asset Price Volatility: Should We Refill the Bernanke-Gertler Prescription?

Author

Abstract

Bernanke and Gertler's influential 1999 article "Asset Price Bubbles and Monetary Policy" made the case that monetary policy should respond to asset prices only to the extent that they have implications for future inflation. This paper revisits that prescription in light of the 2007-09 financial crisis. After reviewing the Bernanke-Gertler logic, the paper surveys the recent evolution of views on the appropriate policy response to asset price fluctuations, and discusses the conditions under which a proactive policy would be justified. There is almost no discernible relationship between interest rates and stock and property prices across countries during the years leading up to the crisis, however. While a theoretical case could be made to give some weight to financial stability in setting monetary policy, the evidence presented in the paper suggests that incremental interest rate adjustments are unlikely to be effective in restraining excessive asset price appreciation.

Suggested Citation

  • Kenneth Kuttner, 2011. "Monetary Policy and Asset Price Volatility: Should We Refill the Bernanke-Gertler Prescription?," Department of Economics Working Papers 2011-04, Department of Economics, Williams College, revised Jun 2011.
    • Handle: RePEc:wil:wileco:2011-04
    as

    Download full text from publisher

    File URL: https://web.williams.edu/Economics/wp/KuttnerMonetaryPolicyAndAssetPriceVolatility.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wil:wileco:2011-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Greg Phelan (email available below). General contact details of provider: https://edirc.repec.org/data/edwilus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.