English, Article, Journal or magazine article edition: Asset Prices and Assymetries in the Fed's Interest Rate Rule : a Financial Approach Romaniuk, Katarzyna; Vranceanu, Radu

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Bookmark: http://trove.nla.gov.au/version/169929
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Asset Prices and Assymetries in the Fed's Interest Rate Rule : a Financial Approach
Author
  • Romaniuk, Katarzyna
  • Vranceanu, Radu
Physical Description
  • preprint
Notes
  • Financial Newspapers have for long suggested that the Fed tends to provide additional Liquidity when the Stock Market thumbs. We provide a theoretical Explanation for this Behaviour that builds on the Methodology developed by Romaniuk (2008) for a central Banker with two main Goals, Output and Price stability. In this Paper, the Policymaker behaves as a Portfolio Manager who aims at stabilizing Output, Goods Prices, as well as Asset Prices. An optimal, Time-varying Interest Rate Rule is obtained as the Merton's (1971) continuous Time Solution to the Portfolio Manager's Problem. In a second Step, we infer the optimal Interest Rate Rule of a central Bank that can react differently to positive and negative Variations in the Stock Market.
  • Optimal Interest Rate Rule; Portfolio Choice; Fed; Asset Prices; Options Theory
  • RePEc:ebg:essewp:dr-08006
Language
  • English
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