Kosuke Aoki

House Prices, Consumption, and Monetary Policy: A Financial Accelerator Approach

We consider a general equilibrium model where asymmetric information problems create frictions in credit markets used by households. In our economy, houses serve as collateral to lower the agency costs related to borrowing. We show that this amplifies the effect of monetary policy shocks on housing investment, house prices and consumption. We consider the effect of a structural change in credit markets that lowers the transaction costs of additional borrowing against housing equity. We show that such a change would increase the effect of monetary policy shocks on consumption, but would decrease the effect on house prices and housing investment.

On the optimal monetary policy response to noisy indicators

Abstract We describe a behavior of a central bank when its measures of current inflation and output are subject to measurement errors, in a framework of optimizing models with nominal price stickiness. In our model, a central bank sets the interest rate equal to its current estimate of the so-called Wicksellian natural rate of interest. This is shown to imply that the interest rate responds to the central banks estimates of both current inflation and output gap, as advocated by Taylor (1993). It is also shown that the noise contained in the indicators justifies a degree of policy cautiousness. A reduced-form representation of optimal policy should exhibit interest-rate smoothing, which is often found in the empirical literature on monetary policy reaction functions.

Inflation, Money Demand and Portfolio Choice

investigate the predicted responses of portfolio choices in response to inflation changes for the wealthier part of the population that hold most of the nominal stocks.

Relative Prices and Inflation Stabilization

When price adjustment is sluggish, inflation is costly in terms of welfare because it distorts various kinds of relative prices. Stabilising aggregate price inflation does not necessarily minimise these costs, but stabilising a well-designed core inflation minimises the cost of relative price fluctuations and thus the cost of inflation.