1. Optimal monetary policy and disclosure with an informationally-constrained central banker
- Author
-
Luigi Iovino, Jennifer La'O, and Rui Mascarenhas
- Subjects
NOMINAL RIGIDITIES ,Economics and Econometrics ,Public information ,media_common.quotation_subject ,MONETARY POLICY ,Monetary policy ,TheoryofComputation_GENERAL ,Monetary economics ,MONETARY SHOCKS ,CENTRAL BANK DISCLOSURE ,Nominal interest rate ,State (polity) ,Complete information ,Central bank ,INFORMATIONAL FRICTIONS ,Economics ,FORWARD GUIDANCE ,MONETARY POLICY, NOMINAL RIGIDITIES, MONETARY SHOCKS, INFORMATIONAL FRICTIONS, CENTRAL BANK DISCLOSURE, FORWARD GUIDANCE ,Implementation ,Finance ,media_common - Abstract
What is the nature of optimal monetary policy and central bank disclosure when the monetary authority is uncertain about the economic state? We consider a model in which firms make nominal pricing decisions and the central bank sets the nominal interest rate under incomplete information. We find that implementing flexible-price allocations is both feasible and optimal despite the existence of numerous measurability constraints; we explore a series of different implementations. When monetary policy is sub-optimal, public information disclosure by the central bank is welfare-improving as long as either firm or central bank information is sufficiently precise.
- Published
- 2022