Should central banks lean against the bubble? The monetary policy conundrum under credit frictions and capital accumulation
We develop an OLG model with productive capital accumulation, frictional financial markets,
sticky prices and a form of heterogeneity among households which splits them between borrowers
and lenders in the credit market. In the spirit of Galí, J., 2014. Monetary policy and
rational asset price bubbles. Am. Econ. Rev. 104, 721–752, we use this framework to study the
consequences of different monetary policy rules, focusing in particular on the so-called “leaning
against the wind” policy, according to which the central bank sets the nominal rate so as to