Game theory: unique equilibrium
Asset Pricing: Term Paper
Topic: Optimal Monetary Policy in the Presence of
Asset-Prices Fluctuation
I. Why I choose this topic:
I interest in the role of asset prices that make a fluctuation of social welfare, because there are many crisis that occur from the financial sector. I try to find the papers that have clear explanation on the structure of economy. Specifically, how asset prices affect the economy and, then, how monetary policymakers should response to this effect. Eventually, I have found “Should Central
Banks Lean Against Changes in Asset Prices? (2011): by Sylvain Leduc and Jean-Marc
Natal”. This paper provides the main building block of the economy, in their model with the presence of endogenous feedback loops between asset prices, firm financial health, and economic activity that I can clearly perceive the structure of economy. After that, they demonstrate that the feedback loop is crucial for the social welfare and provide the optimal monetary policy react to policymaker’s objectives in different situations. My term paper is mostly based on this paper because it has been developed based on many good papers; ie. Bernanke, Gertler, and Gilchrist
(1999), Christiano, Motto, and Rostagno (2003,2010). Also, this paper has compared its result with many related paper and provides the robustness analysis. I provide the review of this paper on the next chapter. I then discuss the intuition and the research gap in the last two chapters.
II. Review of the paper: Should Central Banks Lean Against Changes in Asset Prices?
1. Introduction and Brief Explanation of this paper
The research question is that “How should monetary policy be conducted in the presence of endogenous feedback loops between asset prices, firms’ financial health, and economic activity?”
According to Bernanke and Gertler (1999, 2001), central banks should react to movements in asset prices to the extent that they affect the forecast inflation over the medium run.
Topic: Optimal Monetary Policy in the Presence of
Asset-Prices Fluctuation
I. Why I choose this topic:
I interest in the role of asset prices that make a fluctuation of social welfare, because there are many crisis that occur from the financial sector. I try to find the papers that have clear explanation on the structure of economy. Specifically, how asset prices affect the economy and, then, how monetary policymakers should response to this effect. Eventually, I have found “Should Central
Banks Lean Against Changes in Asset Prices? (2011): by Sylvain Leduc and Jean-Marc
Natal”. This paper provides the main building block of the economy, in their model with the presence of endogenous feedback loops between asset prices, firm financial health, and economic activity that I can clearly perceive the structure of economy. After that, they demonstrate that the feedback loop is crucial for the social welfare and provide the optimal monetary policy react to policymaker’s objectives in different situations. My term paper is mostly based on this paper because it has been developed based on many good papers; ie. Bernanke, Gertler, and Gilchrist
(1999), Christiano, Motto, and Rostagno (2003,2010). Also, this paper has compared its result with many related paper and provides the robustness analysis. I provide the review of this paper on the next chapter. I then discuss the intuition and the research gap in the last two chapters.
II. Review of the paper: Should Central Banks Lean Against Changes in Asset Prices?
1. Introduction and Brief Explanation of this paper
The research question is that “How should monetary policy be conducted in the presence of endogenous feedback loops between asset prices, firms’ financial health, and economic activity?”
According to Bernanke and Gertler (1999, 2001), central banks should react to movements in asset prices to the extent that they affect the forecast inflation over the medium run.