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The Fed must explicitly react to movements on the stock market if it values stability and wishes to avoid large consumption and output swings

Gerba, Eddie (2013) The Fed must explicitly react to movements on the stock market if it values stability and wishes to avoid large consumption and output swings. LSE American Politics and Policy (USAPP) Blog (04 Jun 2013). Blog Entry.

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Abstract

Over the past few years, the Fed has been blamed for fuelling the post-2001 financial market boom by maintaining record-low interest rates and ignoring the developments on the stock market. But, should central bankers really care about stock market swings when there is so much uncertainty and noise involved? Eddie Gerba returns to this pre-crisis debate and re-examines the ‘consensus’ that monetary policy, by responding heavily to movements in inflation and output, is enough to bring the markets under control and stabilize the economy. Using a macro-financial model, he finds that an economy is better off overall in terms of consumption gains when a policy that explicitly targets stock market developments is adopted.

Item Type: Online resource (Blog Entry)
Official URL: http://blogs.lse.ac.uk/usappblog/
Additional Information: © 2014 LSE USAPP; Online
Divisions: European Institute
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
J Political Science > JK Political institutions (United States)
Sets: Departments > European Institute
Collections > LSE American Politics and Policy (USAPP) Blog
Date Deposited: 23 Jun 2014 14:41
Last Modified: 19 Sep 2019 23:16
URI: http://eprints.lse.ac.uk/id/eprint/57206

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