Public Information and Monetary Policy
We study the nature of monetary policy in a model where uncertainty can lead to a discrepancy between economic agents' beliefs and true fundamentals. Monetary policy transmits information about fundamentals. The public nature of this information can help agents to coordinate their decisions. This comes at a cost, however, since monetary policy may lead the private sector to coordinate on the wrong fundamentals and it may result in inflation. We discuss conditions under which monetary policy will be unambiguously welfare-improving. We formalize the notion that monetary policy is equivalent to information revelation by the central bank, and offer an information-based (as opposed to the standard liquidity-based) argument for why higher nominal rate hikes occur less frequently than lower ones.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed008:5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.