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Monetary policy and its informative value

  • Baeriswyl, Romain

    (Ludwig-Maximilians Universitat at Munchen)

  • Cornand, Camille

    (Universite Louis Pasteur Strasbourg)

This paper analyzes the welfare effects of economic transparency in a model of monopolistic competition with imperfect common knowledge on the shocks affecting the economy where the central bank has no inflationary bias. Monetary policy entails a dual role, as an action that stabilizes the economy and as a public signal that partially reveals to firms the central bank’s assessment about the economy. Firms are unable to perfectly disentangle the central bank’s signals responsible for the instrument: the central bank optimally balances the action and information purposes of its instrument. We derive the optimal monetary policy and central bank’s disclosure.

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Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2007)
Issue (Month): March ()
Pages: 1-34

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Handle: RePEc:fip:fedfpr:y:2007:x:4
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  1. Klaus Adam, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," Econometric Society 2004 North American Winter Meetings 24, Econometric Society.
  2. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  3. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  4. Alan S. Blinder, 2000. "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, American Economic Association, vol. 90(5), pages 1421-1431, December.
  5. George-Marios Angeletos & Alessandro Pavan, 2006. "Socially Optimal Coordination: Characterization and Policy Implications," Discussion Papers 1496, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Baeriswyl, Romain & Cornand, Camille, 2007. "Can Opacity of a Credible Central Bank Explain Excessive Inflation?," Discussion Papers in Economics 1376, University of Munich, Department of Economics.
  7. Jeffery D. Amato & Hyun Song Shin & Stephen Morris, 2003. "Communication and monetary policy," BIS Working Papers 123, Bank for International Settlements.
  8. George-Marios Angeletos & Alessandro Pavan, 2007. "Efficient Use of Information and Social Value of Information," Econometrica, Econometric Society, vol. 75(4), pages 1103-1142, 07.
  9. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  10. Eijffinger, Sylvester C.W. & Geraats, Petra M., 2006. "How transparent are central banks?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 1-21, March.
  11. Christian Hellwig, 2004. "Heterogeneous Information and the Benefits of Public Information Disclosures (October 2005)," UCLA Economics Online Papers 283, UCLA Department of Economics.
  12. repec:ner:tilbur:urn:nbn:nl:ui:12-172467 is not listed on IDEAS
  13. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  14. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
  15. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  16. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  17. Alex Cukierman, 2002. "Are contemporary central banks transparent about economic models and objectives and what difference does it make?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 15-36.
  18. Baeriswyl, Romain, 2007. "Central Bank's Action and Communication," Discussion Papers in Economics 1381, University of Munich, Department of Economics.
  19. Christian Hellwig, 2002. "Public Announcements, Adjustment Delays, and the Business Cycle (November 2002)," UCLA Economics Online Papers 208, UCLA Department of Economics.
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