NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Monetary Policy and Asset Price Volatility

Ben Bernanke, Mark Gertler

NBER Working Paper No. 7559
Issued in February 2000
NBER Program(s):   AP   EFG   ME

We explore the implications of asset price volatility for the management of monetary policy. We show that it is desirable for central banks to focus on underlying inflationary pressures. Asset prices become relevant only to the extent they may signal potential inflationary or deflationary forces. Rules that directly target asset prices appear to have undesirable side effects. We base our conclusions on (i) simulation of different policy rules in a small scale macro model and (ii) a comparative analysis of recent U.S. and Japanese monetary policy.

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Document Object Identifier (DOI): 10.3386/w7559

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