European Business Schools Librarian's Group
ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School
No DR 08006: Asset Prices and Assymetries in the Fed's Interest Rate Rule : a Financial Approach
Katarzyna Romaniuk () and Radu Vranceanu ()
Additional contact information
Katarzyna Romaniuk: University of Paris 1 Panthéon-Sorbonne, PRISM, Postal: 1, rue Victor Cousin, 75005 PARIS, FRANCE
Radu Vranceanu: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE Cedex , FRANCE,
Abstract: 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.
Keywords: Optimal Interest Rate Rule; Portfolio Choice; Fed; Asset Prices; Options Theory
16 pages, March 2008
Full text files
showDeclFileRes.do?declId=7691&key=__workpaper__
Questions (including download problems) about the papers in this series should be directed to Sophie Magnanou ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2024-02-05 15:47:16.