Discussion paper

DP14887 Monetary Policy and Bubbles in New Keynesian Model with Overlapping Generations

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.

£6.00
Citation

Gali, J (2020), “DP14887 Monetary Policy and Bubbles in New Keynesian Model with Overlapping Generations”, CEPR Press Discussion Paper No. 14887. https://cepr.org/publications/dp14887