#2382. Robustly optimal monetary policy in a new Keynesian model with housing

November 2026publication date
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Journal’s subject area:
Economics and Econometrics;
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Abstract:
The article analyzes the optimal monetary policy for the extended New Keynesian model with the housing sector. Given rational private sector expectations for house prices and inflation, optimal monetary policy can be characterized by a standard “target” that refers to inflation and output gaps, without reference to house prices. When a policymaker is concerned about potential deviations in private sector expectations from rational expectations and is looking for policies that are resistant to such potential deviations, then the optimal target should also depend on house prices. Following an unexpected increase (decrease) in house prices, a policymaker should take a position that is projected to be below (exceed) his usual inflation and output gap targets.
Keywords:
Belief distortions; Housing prices; New Keynesian model; Reliably optimal policy

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