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Information Acquisition by Price-Setters and Monetary Policy

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Author Info
Volker Hahn () (Center of Economic Research (CER-ETH) at ETH Zurich)

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Abstract

In this paper we examine a model where firms decide on the intensity of information acquisition about shocks. We analyze how the monetary policy framework impacts on the aggregate amount of information collected by firms. We show that it is socially beneficial to delegate monetary policy to a conservative central bank even if there are no incentives to push output above its long-run level. Transparency of central banks about economic shocks has ambiguous e ects on welfare. If an extreme level of opacity is feasible, it represents the social optimum. Otherwise full transparency may be a second-best solution.

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Publisher Info
Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 07/73.

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Length: 33 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:eth:wpswif:07-73

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Related research
Keywords: conservative central banker; optimal monetary policy; information; acquisition; Phillips curve; transparency;

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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