Economics, Econometrics and Finance
8 years ago

Negative monetary policy responses to asset prices lead to economic instability.

Theoretical Economics Letters
Asset Prices, Nominal Rigidities, and Monetary Policy: Negative Monetary Policy Responses to Asset Price Fluctuations
Kengo Nutahara

Paper Summary

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The article shows that when a central bank reacts negatively to changes in share prices, it can lead to uncertainty in the economy. This means that the way the central bank responds to stock market fluctuations can have unpredictable effects on the overall financial stability.