02200cas a2200265 a 4500 AALejournalIMF014961 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498343466 1018-5941 BD-DhAAL BD-DhAAL Airaudo, Marco. Learning, Monetary Policy and Asset Prices / Marco Airaudo, Salvatore Nistico, Luis-Felipe Zanna. Washington, D.C. : International Monetary Fund, 2015. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We explore the stability properties of interest rate rules granting an explicit response to stock prices in a New-Keynesian DSGE model populated by Blanchard-Yaari non-Ricardian households. The constant turnover between long-time stock holders and asset-poor newcomers generates a financial wealth channel where the wedge between current and expected future aggregate consumption is affected by the market value of financial wealth, making stock prices non-redundant for the business cycle. We find that if the financial wealth channel is sufficiently strong, responding to stock prices enlarges the policy space for which the rational expectations equilibrium is both determinate and learnable (in the E-stability sense of Evans and Honkapohja, 2001). In particular, the Taylor principle ceases to be necessary and also mildly passive policy responses to inflation lead to determinacy and E-stability. Our results appear to be more prominent in economies characterized by a lower elasticity of substitution across differentiated products and/or more rigid labor markets. Mode of access: Internet Nistico, Salvatore. Zanna, Luis-Felipe. IMF Working Papers; Working Paper ; No. 2015/016 Full text available on IMF http://elibrary.imf.org/view/journals/001/2015/016/001.2015.issue-016-en.xml IMF e-Library