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

  • Authors: Jordi Galí.
  • macroeconomics
  • American Economic Journal: Macroeconomics

I analyze an extension of the New Keynesian model that features overlapping generations of Önitely-lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the pro-posed framework allows for the existence of rational expectations equilibria with asset price bubbles.I study the conditions under which bubble-driven áuctuations may emerge and the type of monetarypolicy rules that may prevent them. I conclude by discussing some of the modelís welfare implications

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