We provide a continuous-time “risk-centric” representation of the New Keynesian model, which we use to analyze the interactions between asset prices, financial speculation, and macro- economic outcomes when output is determined by aggregate demand. In principle, interest rate policy is...

We theoretically analyze the interactions between asset prices, nancial speculation, and macroeconomic outcomes when output is determined by aggregate demand. If the interest rate is constrained, a rise in the risk premium lowers asset prices and generates a demand recession. This reduces...

We provide a continuous-time "risk-centric" representation of the New Keynesian model, which we use to analyze the interactions between asset prices, financial speculation, and macroeconomic outcomes when output is determined by aggregate demand. In principle, interest rate policy is highly...