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Pre-set Prices, Differential Information and Monetary Policy

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  • Andersen, T M
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    Abstract

    This paper proves the case for an active stabilization policy by analyzi ng an economy exposed to nominal shocks, where prices are pre-set by firms posse ssing differential information. Price decisions are uncoordinated in that when e ach firm sets its price it is imperfectly informed about prices set by other fir ms. The role of a systematic monetary policy, as a means to overcome the implica tions of differential information for the allocation of economic resources, is a nalyzed. Alternatively, a private indexation scheme is also analyzed and compare d to monetary policy, which can eliminate completely the implications of differe ntial information, whereas an indexation scheme can do so only partially. Copyright 1986 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Oxford Economic Papers.

    Volume (Year): 38 (1986)
    Issue (Month): 3 (November)
    Pages: 456-80

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    Handle: RePEc:oup:oxecpp:v:38:y:1986:i:3:p:456-80

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    Cited by:
    1. Jean-Pascal Bénassy, 1999. "On the Optimality of Activist Policies with a Less Informed Government," Discussion Papers of DIW Berlin, DIW Berlin, German Institute for Economic Research 186, DIW Berlin, German Institute for Economic Research.
    2. Bénassy, Jean-pascal, 1997. "On the optimality of activist policies with a less informed government," CEPREMAP Working Papers (Couverture Orange) 9722, CEPREMAP.

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