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Optimal monetary policy and disclosure with an informationally-constrained central banker

Luigi Iovino, La’O, Jennifer and Rui Mascarenhas

Journal of Monetary Economics, 2022, vol. 125, issue C, 151-172

Abstract: What is the nature of optimal monetary policy and central bank disclosure when the monetary authority is uncertain about the economic state? We consider a model in which firms make nominal pricing decisions and the central bank sets the nominal interest rate under incomplete information. We find that implementing flexible-price allocations is both feasible and optimal despite the existence of numerous measurability constraints; we explore a series of different implementations. When monetary policy is sub-optimal, public information disclosure by the central bank is welfare-improving as long as either firm or central bank information is sufficiently precise.

Keywords: Monetary policy; Nominal rigidity; Informational frictions; Central bank disclosure; Uncertainty (search for similar items in EconPapers)
JEL-codes: D80 D83 E32 E52 E58 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jmoneco.2021.10.008

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