Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
We characterize optimal monetary policy when agents learn about endogenous asset prices. Learning leads to inefficient asset price fluctuations and distortions in consumption and investment decisions. We find that the policy-relevant natural real interest rate increases with subjective asset price beliefs. Optimal monetary policy raises interest rates when expected capital gains are high, but does not eliminate deviations of asset prices from their fundamental value. When we add investment to the model, optimal policy also “leans against the wind”. In a simple calibration of the model, a positive response to capital gains in simple interest rate rules is beneficial.