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Incomplete information, strategic uncertainty and optimal monetary policy

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  • Qu, Lijuan

Abstract

This paper studies optimal monetary policy under incomplete information and strategic uncertainty. We show that heightened strategic uncertainty steers policy toward price stabilization by strengthening the central bank’s price-stabilizing response, while an increase in public relative to private information promotes output stabilization by raising the policy weight on output stability. Under endogenous learning, private learning reinforces price stabilization, whereas public learning strengthens output stabilization.

Suggested Citation

  • Qu, Lijuan, 2026. "Incomplete information, strategic uncertainty and optimal monetary policy," Economics Letters, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:ecolet:v:259:y:2026:i:c:s0165176525006202
    DOI: 10.1016/j.econlet.2025.112783
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    References listed on IDEAS

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    1. Adam, Klaus, 2007. "Optimal monetary policy with imperfect common knowledge," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 267-301, March.
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    4. Luo, Shaowen & Tsang, Kwok Ping, 2020. "Elasticity of attention and optimal monetary policy," Economics Letters, Elsevier, vol. 194(C).
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    6. George-Marios Angeletos & Alessandro Pavan, 2007. "Efficient Use of Information and Social Value of Information," Econometrica, Econometric Society, vol. 75(4), pages 1103-1142, July.
    7. Luigi Paciello & Mirko Wiederholt, 2014. "Exogenous Information, Endogenous Information, and Optimal Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 356-388.
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