Conference Paper

Monetary policy and its informative value

Abstract: This paper analyzes the welfare effects of economic transparency in a model of monopolistic competition with imperfect common knowledge on the shocks affecting the economy where the central bank has no inflationary bias. Monetary policy entails a dual role, as an action that stabilizes the economy and as a public signal that partially reveals to firms the central bank?s assessment about the economy. Firms are unable to perfectly disentangle the central bank?s signals responsible for the instrument: the central bank optimally balances the action and information purposes of its instrument. We derive the optimal monetary policy and central bank?s disclosure.

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Proceedings

Publication Date: 2007

Issue: March

Pages: 1-34