Monetary policy and bubbles in a new keynesian model with overlapping generations

Galí, Jordi, 1961-

doi:http://dx.doi.org/10.1257/mac.20180427

Monetary policy and bubbles in a new keynesian model with overlapping generations

Citation

Galí J. Monetary policy and bubbles in a new keynesian model with overlapping generations. Am Econ J Macroecon. 2021 Apr;13(2):121-67. DOI: 10.1257/mac.20180427

Abstract

I analyze an extension of the New Keynesian model that features overlapping generations of finitely lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble- driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model’s welfare implications. (JEL E12, E32, E44, E52, E63)