Exogenous Information, Endogenous Information and Optimal Monetary Policy

Luigi Paciello () and Mirko Wiederholt ()

No 1104, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: This paper studies optimal monetary policy when decision-makers in firms choose how much attention they devote to aggregate conditions. When the amount of attention that decision-makers in firms devote to aggregate conditions is exogenous, complete price stabilization is optimal only in response to shocks that cause efficient fluctuations under perfect information. When decision-makers in firms choose how much attention they devote to aggregate conditions, complete price stabilization is optimal also in response to shocks that cause inefficient fluctuations under perfect information. Hence, recognizing that decision-makers in firms can choose how much attention they devote to aggregate conditions has major implications for optimal policy.

Pages: 66 pages
Date: 2011, Revised 2011-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (19)

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Journal Article: Exogenous Information, Endogenous Information, and Optimal Monetary Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1104

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