Should Canadian Monetary Policy Respond To Asset Prices? Evidence From A Structural Model
Although the Bank of Canada admits asset prices are considered in its policy deliberations because of their effects on inflation or output gap, the Bank of Canada denies trying to stabilize asset prices around fundamental values. However, since the start of the Bank of Canada the authors have seen a boom as well as a bust in the stock market. Are they to believe that the Bank of Canada did not react to these stock market fluctuations, apart from their impact consequences on economy? They investigate this issue by using a structural model based on the New Keynesian framework that is augmented by a stock market variable.