2003•Unpublished venueRequires access
Why Doesn’t Monetary Policy Respond to Asset Prices?
Patrick Artus
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Abstract
In most countries, monetary policy does not respond significantly to asset prices (real estate prices or stock market
prices). A number of explanations have been suggested, such as the inability to control asset prices and the difficulty of
determining “normal” asset prices. This article adds another explanation: in some cases, the best monetary policy is not to
respond to changes in asset prices. Our theoretical dynamic model of the formation of the price of goods and of asset
prices shows that it is best not to respond to changes in asset prices if the Central Bank focuses on the stabilization of
output in the case of sudden changes in demand.