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Pre-set Prices, Differential Information and Monetary Policy

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  • Andersen, T M

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.

Suggested Citation

  • Andersen, T M, 1986. "Pre-set Prices, Differential Information and Monetary Policy," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 456-480, November.
  • Handle: RePEc:oup:oxecpp:v:38:y:1986:i:3:p:456-80
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    Cited by:

    1. Benassy, Jean-Pascal, 2001. "On the optimality of activist policies with a less informed government," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 45-59, February.
    2. Jennifer La'O & George-Marios Angeletos, 2009. "Dispersed Information over the Business Cycle: Optimal Fiscal and Monetary Policy," 2009 Meeting Papers 221, Society for Economic Dynamics.
    3. Jean-Pascal Bénassy, 1999. "On the Optimality of Activist Policies with a Less Informed Government," Discussion Papers of DIW Berlin 186, DIW Berlin, German Institute for Economic Research.

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