The informational effect of monetary policy and the case for policy commitment

Chengcheng Jia

European Economic Review, 2023, vol. 156, issue C

Abstract: I study how the informational effect of monetary policy changes the optimal conduct of monetary policy. In my model, the private sector extracts information about unobserved fundamental shocks from the central bank’s interest rate decisions. The central bank optimally changes the informational effect of the interest rate by committing to a state-contingent policy rule, in which case the Phillips curve becomes endogenous. In a dynamic model, the optimal policy rule overshoots the natural-rate shock and gradually responds to the cost-push shock, which makes the interest rate change expected output growth but not expected inflation.

Keywords: Monetary policy; Information frictions; Policy commitment (search for similar items in EconPapers)
JEL-codes: D83 D84 E31 E52 E58 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: The Informational Effect of Monetary Policy and the Case for Policy Commitment (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:156:y:2023:i:c:s0014292123000971

DOI: 10.1016/j.euroecorev.2023.104468

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