Monetary policy and its informative value

Romain Baeriswyl and Camille Cornand

Proceedings, 2007, issue March, 34 pages

Abstract: This paper analyzes the welfare effects of economic transparency in a model of monopolistic competition with imperfect common knowledge on the shocks affecting the economy where the central bank has no inflationary bias. Monetary policy entails a dual role, as an action that stabilizes the economy and as a public signal that partially reveals to firms the central bank?s assessment about the economy. Firms are unable to perfectly disentangle the central bank?s signals responsible for the instrument: the central bank optimally balances the action and information purposes of its instrument. We derive the optimal monetary policy and central bank?s disclosure.

Date: 2007
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Working Paper: Monetary policy and its informative value (2006)
Working Paper: Monetary Policy and its Informative Value (2006)
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