Asset prices, output and monetary policy in a small open economy. (English) Zbl 1152.91675
Summary: We formulate a macro-model of a small open economy in order to investigate the relative performance of rules that respond to asset prices and those that do not. Our model consists of three asset prices: the stock price, the long-term interest rate and the exchange rate. These asset prices interact with nominal wage and price Phillips curves, a law of motion for the labour share, a dynamic IS curve that describes output adjustment and a Taylor-type interest rate policy rule. Estimations of the model show that policy rules that respond to asset price movements dominate rules that do not.
MSC:
| 91B64 | Macroeconomic theory (monetary models, models of taxation) |
| 91B24 | Microeconomic theory (price theory and economic markets) |
| 91B54 | Special types of economic markets (including Cournot, Bertrand) |
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