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Price-Level Determination Under Dispersed Information and Monetary Policy

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  • Aoki, Kosuke

Abstract

This paper considers the determination of aggregate price level under dispersed information. Central Bank sets policy in response to its noisy measure of the price level, and each agent makes its decisions by observing a subset of data. Information revealed to the agents and Bank is determined endogenously. It is shown that the aggregate state of the economy is not revealed perfectly to anybody but this economy behaves as if it is a representative-agent economy in which the representative agent has perfect information while the Bank has partial information. The Bank has information set affects fluctuations in the price level through its effect on policy.

Suggested Citation

  • Aoki, Kosuke, 2006. "Price-Level Determination Under Dispersed Information and Monetary Policy," CEPR Discussion Papers 5570, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5570
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    References listed on IDEAS

    as
    1. Svensson, Lars E. O. & Woodford, Michael, 2003. "Indicator variables for optimal policy," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 691-720, April.
    2. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
    3. Hyun Song Shin & Jeffery D. Amato, 2003. "Public and private information in monetary policy models," BIS Working Papers 138, Bank for International Settlements.
    4. Christian Hellwig, 2002. "Public Announcements, Adjustment Delays, and the Business Cycle (November 2002)," UCLA Economics Online Papers 208, UCLA Department of Economics.
    5. Sanford J. Grossman, 1981. "An Introduction to the Theory of Rational Expectations Under Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 48(4), pages 541-559.
    6. Michael Woodford, 2001. "Imperfect Common Knowledge and the Effects of Monetary Policy," NBER Working Papers 8673, National Bureau of Economic Research, Inc.
    7. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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    Cited by:

    1. Kosuke Aoki & Takeshi Kimura, 2007. "Uncertainty about Perceived Inflation Target and Monetary Policy," Bank of Japan Working Paper Series 07-E-16, Bank of Japan.
    2. Kosuke Aoki & Takeshi Kimura, 2008. "Central Bank's Two-Way Communication with the Public and Inflation Dynamics," CEP Discussion Papers dp0899, Centre for Economic Performance, LSE.
    3. Scharnagl, Michael & Gerberding, Christina & Seitz, Franz, 2007. "Simple interest rate rules with a role for money," Discussion Paper Series 1: Economic Studies 2007,31, Deutsche Bundesbank.
    4. Michael Scharnagl & Christina Gerberding & Franz Seitz, 2010. "Should Monetary Policy Respond to Money Growth? New Results for the Euro Area," International Finance, Wiley Blackwell, vol. 13(3), pages 409-441, Winter.

    More about this item

    Keywords

    monetary policy; uncertainty;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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