Monetary Policy, Endogenous Inattention and the Volatility Trade‐off

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

Economic Journal, 2009, vol. 119, issue 534, 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.

Date: 2009
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https://doi.org/10.1111/j.1468-0297.2008.02222.x

Related works:
Journal Article: Monetary Policy, Endogenous Inattention and the Volatility Trade-off (2009)
Working Paper: Monetary Policy, Endogenous Inattention, and the Volatility Trade-off (2007)
Working Paper: Monetary Policy, Endogenous Inattention, and the Volatility Trade-off (2006)
Working Paper: Monetary policy, endogenous inattention, and the volatility trade-off (2004)
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