Credibility, Ambiguity and Asymmetric Information with Wage Stickiness
AbstractThe effect of asymmetric information on monetary policy is investigated in the context of an overlapping wage contract model. Optimal rules with and without precommitment under full information are compared with the optimal rule without precommitment (i.e., the discretionary rule) under asymmetric information. The results extend those of A. Cukierman and A. H. Meltzer (1986) to a dynamic model with a short-run output/inflation trade-off. The optimal discretionary rate is less than that under full information and there is also a role for ambiguity in the setting of monetary policy. Both effects of asymmetric information diminish as the average length of wage contracts increases. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Bibliographic InfoArticle provided by University of Manchester in its journal The Manchester School of Economic & Social Studies.
Volume (Year): 62 (1994)
Issue (Month): 1 (March)
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Web page: http://www.socialsciences.manchester.ac.uk/disciplines/economics/
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- Jon Faust & Lars E. O. Svensson, 1998.
"Transparency and Credibility: Monetary Policy with Unobservable Goals,"
NBER Working Papers
6452, National Bureau of Economic Research, Inc.
- Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-97, May.
- Faust, J. & Svensson, L.E.O., 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," Papers 636, Stockholm - International Economic Studies.
- Faust, Jon & Svensson, Lars E O, 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," CEPR Discussion Papers 1852, C.E.P.R. Discussion Papers.
- Svensson, Lars E.O. & Faust, John, 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," Seminar Papers 636, Stockholm University, Institute for International Economic Studies.
- Jon Faust & Lars E.O. Svensson, 1998. "Transparency and credibility: monetary policy with unobservable goals," International Finance Discussion Papers 605, Board of Governors of the Federal Reserve System (U.S.).
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