Monetary Policy, Endogenous Inattention and the Volatility Trade-off

William A. Branch (), John Carlson, George William Evans () and Bruce McGough ()

Economic Journal, 2009, vol. 119, issue 534, pages 123-157

Abstract: This article considers the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimising a loss function that depends on expected forecast errors and information costs. "Endogenous inattention" is a Nash equilibrium in the information processing rate. Although a decline of policy activism directly increases output volatility, it indirectly anchors expectations, which decreases output volatility. If the indirect effect dominates then the usual trade-off between output and price volatility breaks down. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2009

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Related works:
Working Paper: Monetary policy, endogenous inattention, and the volatility trade-off (2004)
Working Paper: Monetary Policy, Endogenous Inattention, and the Volatility Trade-off (2007)
Working Paper: Monetary Policy, Endogenous Inattention, and the Volatility Trade-off (2006)
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