TY  - JOUR
AU  - Christiano,Lawrence
AU  - Ilut,Cosmin L.
AU  - Motto,Roberto
AU  - Rostagno,Massimo
TI  - Monetary Policy and Stock Market Booms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16402
PY  - 2010
Y2  - September 2010
UR  - http://www.nber.org/papers/w16402
L1  - http://www.nber.org/papers/w16402.pdf
N1  - Author contact info:
Lawrence Christiano
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8231
Fax: 847/491-7001
E-Mail: l-christiano@northwestern.edu

Cosmin L. Ilut
Department of Economics
Duke University
223 Social Sciences Building
Box 90097
Durham, NC 27708
Tel: 919/660-1844
E-Mail: cosmin.ilut@duke.edu

Roberto Motto
European Central Bank
Postfach 16 03 19
D-60066 Frankfurt am Main
GERMANY
E-Mail: roberto.motto@ecb.int

Massimo Rostagno
European Central Bank
Postfach 16-03-19
D-60066 Frankfurt am Main
GERMANY
E-Mail: Massimo.Rostagno@ecb.int
AB  - Historical data and model simulations support the following conclusion. Inflation is low during stock market booms, so that an interest rate rule that is too narrowly focused on inflation destabilizes asset markets and the broader economy. Adjustments to the interest rate rule can remove this source of welfare-reducing instability. For example, allowing an independent role for credit growth (beyond its role in constructing the inflation forecast) would reduce the volatility of output and asset prices.
ER  -