Publication

This paper examines whether central banks should target stock prices so as to prevent bubbles and crashes from occurring. It uses a behavioral macroeconomic model generating bubbles and crashes. The author analyzes how "leaning against the wind" strategies, which aim to reduce the volatility of stock prices, can help in reducing volatility of output and inflation. The author finds that such policies can be effective, but that they depend on the degree of credibility of the inflation-targeting regime.