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UID:d9e509d2129c60e2e688fb84e68f4757
CATEGORIES:Seminars
CREATED:20161216T181442
SUMMARY:Kevin Sheedy - London School of Economics
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:A Tale of Two Inflation Rates: House-Price Inflation and Monetary Policy\nA
 bstract:\nPrice stability should be the ultimate goal of monetary policy, b
 ut which of many money prices should a central bank stabilize? A common arg
 ument is that the consumer price index should be stabilized because goods p
 rices are sticky, with this being the key friction that monetary policy sho
 uld mitigate. This paper presents a heterogeneous-agent, incomplete-markets
  model where households buy and sell houses over their lifetimes with purch
 ases financed by nominal mortgage debt. The model includes aggregate risk f
 rom productivity shocks as well as financial shocks to borrowing constraint
 s. The model generates a “financial cycle” where shocks that affect nominal
  house prices have real effects on balance sheets and lending, which feeds 
 back into house prices. As a consequence, house-price fluctuations have imp
 lications for consumption volatility, as well as production. In this contex
 t, it is argued that the price stability central banks should seek is stabi
 lity of nominal house prices. Achieving this improves risk sharing, promote
 s productive efficiency, and avoids bubbles. Moreover, by considering an ad
 ditional “macroprudential” policy instrument, it is shown that interest-rat
 e policy outperforms macroprudential policy in addressing financial stabili
 ty concerns.\n
DTSTAMP:20260404T022005Z
DTSTART:20151123T173000Z
DTEND:20151123T190000Z
SEQUENCE:0
TRANSP:OPAQUE
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