A1330
Title: Monetary policy, stock prices and temporal aggregation in a new Keynesian model with behavioral expectations
Authors: Naira Kotb - Otto-Friedrich-Universität Bamberg (Germany) [presenting]
Christian Proano - Otto-Friedrich-Universitaet Bamberg (Germany)
Abstract: The implications of temporal aggregation, i.e. the discrepancy between the data generation process (DGP) and the data collection process (DCP), are investigated for the design of monetary policy in a New Keynesian macroeconomic framework with boundedly rational agents. The model by a prior study investigates if monetary policy should explicitly respond to stock prices due to a structural linkage between the stock market and real activity. This is stressed in a similar model with agents with heterogeneous boundedly rational expectations by showing that responding to the stock price is further justified when real data is only available at a delay due to temporal aggregation. Under these conditions, moderately reacting to high-frequency stock price movements can stabilize the financial and real sectors.
