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Comment on Iovino, La’O and Mascarenhas, “Optimal Monetary Policy and Disclosure with an Informationally-Constrained Central Banker”

Varadarajan Chari () and Luis Perez

No 628, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Iovino, La’O and Mascarenhas (forthcoming) ask two important questions regarding the optimal conduct of monetary policy: Should the central bank’s policy depend on information the central bank has that is not available to markets? And should the central bank disclose information that it has but market participants do not? Iovino, La’O and Mascarenhas answer these questions using a simple, stylized model with one-period price stickiness. They show that efficient equilibria can be sustained regardless of whether policy depends on the central bank’s information and regardless of its disclosure policy. We explain the logic behind their irrelevance result and show that if restrictions are imposed on equilibria, then monetary policy should in general depend on the central bank’s information. Finally, we offer some speculative answers to their questions and discuss the sense in which policy is converging towards theory.

Keywords: Indeterminacy; Implementation of efficient outcomes; Dependence of policy on information; Central bank communication (search for similar items in EconPapers)
JEL-codes: E52 E58 H21 (search for similar items in EconPapers)
Pages: 18
Date: 2021-11-09
New Economics Papers: this item is included in nep-cba, nep-his and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:93459

DOI: 10.21034/sr.628

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