Monetary policy for a bubbly world

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• dc.contributor.author Asriyan, Vladimir
• dc.contributor.author Fornaro, Luca
• dc.contributor.author Martin, Alberto
• dc.contributor.author Ventura, Jaume
• dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
• dc.date.accessioned 2024-11-14T10:09:33Z
• dc.date.available 2024-11-14T10:09:33Z
• dc.date.issued 2016-07-01
• dc.date.modified 2024-11-14T10:05:17Z
• dc.description.abstract What is the role of monetary policy in a bubbly world? To address this question, we study an economy in which financial frictions limit the supply of assets. The ensuing scarcity generates a demand for â unbackedâ assets, i.e., assets that are backed only by the expectation of their future value. We consider two types of unbacked assets: bubbles, which are created by the private sector, and money, which is created by the central bank. Bubbles and money share many features, but they also differ in two crucial respects. First, while the rents from the creation of bubbles accrue to entrepreneurs and foster investment, the rents from money creation accrue to the central bank. Second, while bubbles are driven by market psychology, and can rise and fall according to the whims of the market, money is under the control of the central bank. We characterize the optimal monetary policy and show that, through its ability to supply assets, monetary policy plays a key role in the bubbly world. The model sheds light on the recent expansion of central bank liabilities in response to the bursting of bubbles.
• dc.format.mimetype application/pdf*
• dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1533
• dc.identifier.citation The Review of Economic Studies, 88 (3), 2021, 1418–1456.
• dc.identifier.uri http://hdl.handle.net/10230/27325
• dc.language.iso eng
• dc.relation.ispartofseries Economics and Business Working Papers Series; 1533
• dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword bubbles
• dc.subject.keyword monetary policy
• dc.subject.keyword liquidity traps
• dc.subject.keyword financial frictions.
• dc.subject.keyword Macroeconomics and International Economics
• dc.title Monetary policy for a bubbly world
• dc.title.alternative
• dc.type info:eu-repo/semantics/workingPaper