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

Recognition Program

Authors: Jordi Galí

American Economic Journal: Macroeconomics, Vol. 13, No 2, 121-67, April, 2021

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

This paper originally appeared as Barcelona School of Economics Working Paper 959
This paper is acknowledged by the Barcelona School of Economics Recognition Program