THE ISSUES OF MONETARY POLICY RESPONSE TO ASSET PRICE BUBBLES IN MODELS WITH ASSUMPTION OF THE FINANCIAL ACCELERATOR

Abstract

In economic modeling problems, asset prices are considered endogenous variables. Meanwhile, there are times when they do not reflect the true nature of the economy, that is, pricing is not based on the fundamentals. It is worth noting that such fluctuations in asset prices are not only the result of deviations from the fundamentals of the economy; but also have an impact on the economy, causing real economic instability. Such fluctuations in asset prices can be attributed to both the irrational (or so-called behavioral) characteristics of investors and the liberal policies pursued by regulators, which are characterized by increased access to credit and can lead to asset overvaluation. The paper aims to present possible ways in which asset price bubbles affect real macroeconomic variables, as well as the models used by regulators to respond to bubbles, emphasizing those based on the concept of a financial accelerator. The paper expands the results of the statistical test for the presence of bubbles in the real estate market in Yerevan and the approaches used by the Central Bank of RA to respond to asset price fluctuations