UNSPECIFIED (2004) Monetary policy rules, asset prices, and exchange rates. IMF STAFF PAPERS, 51 (3). pp. 529-552. ISSN 1020-7635

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Abstract

We examine empirically whether asset prices and exchange rates may be admitted into a standard interest rate rule, using data for the United States, the United Kingdom, and Japan since 1979. Asset prices and exchange rates can be employed as information variables for a standard "Taylor-type" rule or as arguments in an augmented interest rate rule. Our empirical evidence, based on measures of the output gap proxied by marginal cost calculations, suggests that monetary policy-makers may use asset prices and exchange rates not only as part of their information set for setting interest rates, but also to set interest rates to offset deviations of asset prices or exchange rates from their equilibrium levels. These results are open to several alternative interpretations.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	IMF STAFF PAPERS
Publisher:	INT MONETARY FUND
ISSN:	1020-7635
Date:	2004
Volume:	51
Number:	3
Number of Pages:	24
Page Range:	pp. 529-552
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/7605

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