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Two Roles for Monetary Policy when the Asset Market is Incomplete and Information is Asymmetric

Author

Listed:
  • DONATI, P.

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

I construct and analyze an example of an economy with production and money under conditions of uncertainty, asymmetric information, and an incomplete asset market. For alternative scenarios, which differ in the information available to consumers and firms, I compute the equilibrium prices and allocations, and I explicitly display the associated indeterminacy. I argue that monetary policy can he effective (i) by modifying the structure of payoffs of assets and (ii) by modifying the information conveyed by prices.

Suggested Citation

  • Donati, P., 1996. "Two Roles for Monetary Policy when the Asset Market is Incomplete and Information is Asymmetric," LIDAM Discussion Papers CORE 1996024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1996024
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1996.html
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    More about this item

    Keywords

    Incomplete Markets; Monetary Policy; Asymmetric Information;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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