Optimal Monetary Policy Rules and House Prices: The Role of Financial Frictions
Banca d'Italia, Economic Outlook and Monetary Policy Directorate
Two-sector New Keynesian model with housing sector and financial frictions. Households divided into patient (savers) and impatient (borrowers) agents with different discount factors. Impatient households face perpetually binding collateral cons
intermediate goods: monopolistic competition with Calvo pricing; final goods: perfect competition aggregating differentiated intermediates
Table 3
Frictionless model (representative agent, no borrowing constraints); optimal inflation volatility is zero