Economics, Econometrics and Finance
4 years ago

Monetary policy should lower interest rates with higher capital prices.

RePEc: Research Papers in Economics
Q-Targeting in New Keynesian Models
Burkhard Heer, Alfred Maußner, Halvor Ruf

Paper Summary

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The article discusses how to set interest rates in a model that combines credit issues with sticky prices and capital costs. The researchers found that interest rates should be lowered when capital prices are higher, but this has only a small impact on welfare. The study's results hold true even with different welfare measures and changes in households' preferences.