Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations
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Abstract
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.Citation
Galí, Jordi. 2021. "Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations." American Economic Journal: Macroeconomics, 13 (2): 121-67. DOI: 10.1257/mac.20180427Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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