Asset Prices and Monetary Policy

How should central banks take into account movements in asset prices in the conduct of monetary policy? We provide an analysis to address this issue using a dynamic stochastic general equilibrium model incorporating both price rigidities and financial market imperfections. Our findings are twofold. First, in the presence of these two sources of distortion in the economy, central banks face a policy trade-off between stabilizing inflation and the output gap. With this trade-off, central banks could strike a better balance between both objectives if they took variables other than inflation, such as asset prices, into consideration. Second, these benefits decrease when central banks rely on limited information about the underlying sources of asset price movements and cannot judge which part of the observed asset price movements reflects inefficiencies in the economy.Asset prices; Monetary policy; Financial frictions; Policy trade-offs

Asset Prices and Monetary Policy

How should central banks take into account movements in asset prices in the conduct of monetary policy? We provide an analysis to address this issue using a dynamic stochastic general equilibrium model incorporating both price rigidities and financial market imperfections. Our findings are twofold. First, in the presence of these two sources of distortion in the economy, central banks face a policy tradeoff between stabilizing inflation and the output gap. With this tradeoff, central banks could strike a better balance between both objectives if they took variables other than inflation, such as asset prices, into consideration. Second, these benefits decrease when central banks rely on limited information about the underlying sources of asset price movements and cannot judge which part of the observed asset price movements reflects inefficiencies in the economy.asset prices, monetary policy, financial frictions, policy tradeoffs

Expectations, Asset Prices, and Monetary Policy: The Role of Learning

This paper studies the implications of financial market imperfections represented by a countercyclical external finance premium and the gradual recognition of changes in the drift of technology growth for the design of an interest rate rule. Asset price movements induced by changes in trend growth influence balance-sheet conditions that determine the external finance premium. Such movements are magnified when the private sector is imperfectly informed regarding the trend growth rate of technology. The presence of financial market imperfections provides a motivation for responding to the gap between the observed asset prices and the potential level of asset prices in addition to responding strongly to inflation. This is because the asset price gap represents distortions in the resource allocation induced by financial market imperfections more distinctly than inflation. The policymaker's imperfect information about the drift of technology growth renders imprecise the calculation of the potential and thus reduces the benefit of responding to the asset price gap. A policy that responds to the level of asset prices which does not take into account changes in potential tends to be welfare reducing.

The Global Impact of Chinese Growth

Three decades have passed since China dramatically opened up to the global market and began to catch up rapidly with leading economies. In this paper we discuss the effects of China's opening-up and rapid growth on the welfare of both China and the rest of the world (ROW). We find that the opening-up per se is welfare improving for China but has had little impact on the ROW. The opening-up of China is beneficial to the ROW if it led to significant productivity growth in China. Furthermore, China's balanced trade policy after the opening-up has helped the ROW rather than China. Hence, according to a simple neoclassical model with complete markets, a gradual trade liberalization in China is preferable to a drastic one from the ROW perspective

The Global Impact of Chinese Growth

Three decades have passed since China dramatically opened up to the global market and began to catch up rapidly with leading economies. In this paper we discuss the effects of Chinafs opening-up and rapid growth on the welfare of both China and the rest of the world (ROW). We find that the opening-up per se is welfare improving for China but has had little impact on the ROW given a balanced trade constraint. The opening-up of China is beneficial to the ROW if it leads to significant productivity growth in China. Also, Chinafs balanced trade policy after the opening-up has helped the ROW rather than China.Productivity, Terms of Trade, Growth, Open Economy

Various Factors of Water Entry and Penetration Through Water Proofing Layer in Wooden Wall Assembly

Rainwater entry and penetration through a waterproofing layer, such as external finishing and sheathing membrane, should be avoided to prevent moisture damage to a wooden wall assembly. However, housing warranty insurance organizations in Japan have reported that deterioration in some wall assemblies was caused by rain penetration, and severely damaged walls were detected in airtight and insulated building envelopes. This paper presents various factors of water entry and penetration of the waterproofing layers in wooden wall assemblies in terms of practical situations, as a part of a research project to reveal the risk of water and moisture accumulation in collaboration with government and industries in Japan. Several experimental works using mock-up specimens replicating a part of the wall assembly were carried out. As for external finishing, the water intrusion was observed not only at the joints but also at the bottom of vented cavities. Although these minor defects must be prevented by proper design and site work, it is difficult to avoid them completely through the construction process and period of use. Indeed, the extent of water entry was affected by various factors such as wall configuration, exposure conditions and so on. Experimental results suggested that various factors, including detail of interface and quality of materials, should be considered to assess service life prediction by hygrothermal analysis

Characteristic Scales of Baryon Acoustic Oscillations from Perturbation Theory: Non-linearity and Redshift-Space Distortion Effects

An acoustic oscillation of the primeval photon-baryon fluid around the decoupling time imprints a characteristic scale in the galaxy distribution today, known as the baryon acoustic oscillation (BAO) scale. Several on-going and/or future galaxy surveys aim at detecting and precisely determining the BAO scale so as to trace the expansion history of the universe. We consider nonlinear and redshift-space distortion effects on the shifts of the BAO scale in $k$-space using perturbation theory. The resulting shifts are indeed sensitive to different choices of the definition of the BAO scale, which needs to be kept in mind in the data analysis. We present a toy model to explain the physical behavior of the shifts. We find that the BAO scale defined as in Percival et al. (2007) indeed shows very small shifts ($\lesssim$ 1%) relative to the prediction in {\it linear theory} in real space. The shifts can be predicted accurately for scales where the perturbation theory is reliable.Comment: 21 pages, 9 figures, references and supplementary sections added, accepted for publication in PAS