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Report
On the Efficiency of Competitive Equilibria with Pandemics
The epidemiological literature suggests that virus transmission occurs only when individuals are in relatively close contact. We show that if society can control the extent to which economic agents are exposed to the virus and agents can commit to contracts, virus externalities are local, and competitive equilibria are efficient. The Second Welfare Theorem also holds. These results still apply when infection status is imperfectly observed and when agents are privately informed about their infection status. If society cannot control virus exposure, then virus externalities are global and ...
Report
Comment on Iovino, La’O and Mascarenhas, “Optimal Monetary Policy and Disclosure with an Informationally-Constrained Central Banker”
Iovino, La’O and Mascarenhas (forthcoming) ask two important questions regarding the optimal conduct of monetary policy: Should the central bank’s policy depend on information the central bank has that is not available to markets? And should the central bank disclose information that it has but market participants do not? Iovino, La’O and Mascarenhas answer these questions using a simple, stylized model with one-period price stickiness. They show that efficient equilibria can be sustained regardless of whether policy depends on the central bank’s information and regardless of its ...