real rigidity nominal rigidity and the social value of information does welfare improve when firms are better informed about the state of the economy and can thus better coordinate their production and pricing decisions we address this question in an elementary business cycle model that highlights how the dispersion of information can impede both kinds of decisions and in this sense be the source of both real and nominal rigidity within this context we develop a taxonomy for how the social value of information depends on the two rigidities on the sources of the business cycle and on the conduct of monetary policy jel d21 d82 d83 e32 e52

self fulfilling currency crises the role of interest rates abstract we develop a stylized currency crises model with heterogeneous information among investors andendogenous determination of interest rates in a noisy rational expectations equilibrium our modelcaptures three key features of interest rates the opportunity cost of attacking the currency respondsto the investors behavior the domestic interest rate may influence the central bank s preferences fora fixed exchange rate and the domestic interest rate serves as a public signal which aggregatesprivate information about fundamentals we explore the payoff and informational channels throughwhich interest rates determine devaluation outcomes and examine the implications for equilibriumselection by global games methods our main conclusion is that multiplicity is not an artifact ofcommon knowledge in particular we show that multiplicity emerges robustly either when adevaluation is triggered by the cost of high domestic interest rates as in obstfeld 1996 or when adevaluation is triggered by the central bank s loss of foreign reserves as in obstfeld 1986 providedthat the domestic asset supply is sufficiently elastic in the interest rate and shocks to the domesticbond supply are sufficiently small christian helliwigdepartment of economicsuniversity of california los angelesbox 951477los angeles ca 90095 1477arijit mukherjiuniversity of minnesotaaleh tsyvinskidepartment of economicsharvard universitylittauer centercambridge ma 02138 3001

do central bank forecasts influence private agents forecasting performance versus signals focusing on a set of central banks that publish their internal macroeconomic forecasts in real time enables one to shed light on the expectations channel of monetary policy the main contribution of this paper is to assess whether central bank forecasts influence private forecasts the response is positive for inflation forecasts in sweden the uk and japan to disentangle the sources of influence of central banks two concepts are proposed endogenous influence which is due to more accurate central bank forecasts and exogenous influence which is due to central bank signals on either future policy decisions or private information original empirical evidence on the central bank forecasting performance relative to private agents is provided and estimates show that in sweden more accurate inflation forecasts generate specific central bank influence that is different from the influence from signals the publication of forecasts may therefore refer to two central banking strategies that aim to shape private expectations forecasting or policymaking

the elasticity of prices with respect to monetary components some estimates for the uk 1948 1979 this paper reports estimates of the elasticity of various monetary components in the uk by assessing their ability to explain prices tests of the monetarist proposition that a unit change in a weighted monetary aggregate migh lead to a unit change in the price level in the long run and of the appropriateness of the current practice of constructing monetary aggregates by the simple summation of monetary components are also performed

optimal monetary policy and transparency under informational frictions this paper examines the optimal monetary policy and central bank transparency in an economy where firms set prices under informational frictions the economy is subject to two types of shocks determining the efficient output level and firms desired markups to minimize the welfare reducing output gap and price dispersion between firms the central bank controls firms incentives and expectations by using a monetary instrument and disclosing information on the realized shocks this paper shows that an optimal policy comprises the disclosure of a linear combination of the two shocks and the adjustment of monetary instruments contingent on the disclosed information

imperfect information multiple shocks and policy s signaling role abstract in multiple shock models when agents have imperfect information they attempt to infer a shock s type in addition to its size in this environment monetary policy plays an important signaling role this paper highlights this signaling role by showing that conclusions from imperfect information monetary models are sensitive to the number of shocks included with multiple shocks contractionary monetary policy can initially increase inflation and delay the eventual disinflation moreover multiple shocks can result in destabilizing price flexibility while optimal policy s response to one shock will depend on the existence of other shocks contrary to a typical linear quadratic framework

learning over the business cycle policy implications abstract this paper studies the policy implications of the endogeneity of information about the state of the economy the business cycle can be made less noisy and more efficient by incentivizing firms to vary their pricing and production decisions more with their beliefs about the state of the economy this calls for countercyclical taxes complemented by a monetary policy that leans against the wind the optimal policies trade off allocative efficiency for informational efficiency

the information content of monetary aggregates in the u k abstract this paper presents some results evaluating the information content of several monetary aggregates formed as simple sums or as divisia quantity indices the former tend to dominate the latter there is considerable support for the new broader official monetary aggregate psl2

corruption top down or bottom up this article studies the impact of corruption on an economy with a hierarchical government in particular we study whether centralizing corruption within the higher level of government increases or decreases the total amount of corruption we show that when the after tax relative profitability of the formal sector as compared to that of the informal sector is high enough adding a layer of government increases the total amount of corruption by contrast for high enough public wages and or an efficient monitoring technology of the bureaucratic system centralization of corruption at the top of the government hierarchy redistributes bribe income from the lower level to the upper level in the process total corruption is reduced and the formal sector of the economy expands

heterogeneous private sector information central bank disclosure and stabilization policy conventional wisdom has it that a central bank that uses an informational advantage to undertake active policy intervention can do as well at least so far as real outcomes are concerned by making its information publicly available and abstaining from stabilization this notion is examined using a framework incorporating heterogeneous private sector information concerning aggregate demand shocks an activist regime in which the central bank exploits its own information to engage in stabilization is found to be unambiguously superior to a noninterventionist regime where the central bank maintains a constant setting of policy but publicly discloses its own information

the aggregation error in divisia monetary aggregates some findings for the u k 1963 1980 abstract in this paper we examine the potential aggregation error or information loss in the construction of divisia indices of monetary aggregates for the uk all the indices produce no information loss but in detail our findings differ from those for the us

strategic complementarity stabilization policy and the optimal degree of publicity this paper examines the welfare implications of public information dissemination within a model in which information is heterogeneous across agents and where a strategic complementarity is present the focus of the analysis is on how the presence of stabilization policy affects the case for transparency in considering this issue it extends james and lawler s 2011 contribution by incorporating an alternative payoff function and by employing a different representation of public disclosure the study s key finding is that the conclusions drawn in its precursor are robust to these modifications specifically in the presence of optimally designed policy intervention zero transparency maximizes welfare

an informational rationale for action over disclosure abstract the past two decades have seen a considerable increase in the amount of public information provided by policymakers are such disclosures desirable or is it instead preferable to use such information to condition a policy instrument such a tax or an interest rate this paper studies the relative merits of each means to use a policymaker s information in a flexible class of economies that feature dispersed information and payoff and learning externalities i provide conditions for when the exclusive use of a policy instrument or disclosure is optimal i then relate these to differences in the equilibrium and socially optimal use of information i conclude with a series of applications that show how my results apply to common beauty contest models competitive economies and a broad class of macroeconomic models among others

exogenous information endogenous information and optimal monetary policy most of the analysis of optimal monetary policy is conducted with the calvo model this paper studies optimal monetary policy when the slow adjustment of the price level is due to imperfect information by decision makers in firms we consider two models a model with exogenous dispersed information and a rational inattention model in the model with exogenous dispersed information complete stabilization of the price level is optimal after aggregate productivity shocks but not after markup shocks by contrast in the rational inattention model complete stabilization of the price level is optimal both after aggregate productivity shocks and after markup shocks moreover in the model with exogenous dispersed information there is no value from commitment to a future monetary policy by contrast in the rational inattention model there is value from commitment to a future monetary policy because then the private sector can trust the central bank that not paying attention to certain variables is optimal

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

observing and shaping the market the dilemma of central banks while the central bank observes the market activity to assess economic fundamentals it shapes the market outcome through its policy interventions the more the central bank influences the market the more it spoils the informational content of economic aggregates how should the central bank act and communicate when it derives its information from observing the market this paper analyses the optimal central bank s action and disclosure under endogenous central bank s information for three operational frameworks pure communication action and communication and signaling action when the central bank takes an action it would be optimal for the central bank to be fully opaque to prevent its disclosure from deteriorating the information quality of market outcomes however in the realistic case where central bank s action is observable it may be optimal to refrain from implementing any action

optimal monetary policy with imperfect common knowledge we study optimal nominal demand policy in a flexible price economy with monopolistic competition where firms have imperfect common knowledge about the shocks hitting the economy information imperfections emerge endogenously because firms are assumed to have finite shannon capacity to process information we then ask how policy that minimizes a quadratic objective in output and prices depends on firms processing capacity when price setting decisions of firms are strategic complements we find that policy should nominally accommodate white noise mark up shocks for a large range of capacity values this fi nding is robust to the policy maker observing shocks imperfectly or being uncertain about firms processing capacity when mark up shocks are persistent accommodation may even have to increase in the medium term but has to decrease in the long run thereby generating a hump shaped price response and a slow reduction in output instead when prices are strategic substitutes policy tends to react with nominal demand contractions to mark up shocks in addition there might exist discontinuities between common knowledge equilibria and equilibria with small amounts of imperfect common knowledge

corruption competition and democracy abstract this paper presents a model of the interaction between corrupt government officials and industrial firms to show that corruption is antithetical to competition it is hypothesized that a government agent that controls access to a formal market has a self interest in demanding a bribe payment that serves to limit the number of firms this corrupt official will also be subject to a detection technology that is a function of the amount of the bribe payment and the number of firms that pay it under quite normal assumptions about the shape of the graph of the detection function multiple equilibria can arise where one equilibrium is characterized by high corruption and low competition and another is characterized by low corruption and high competition some suggestive empirical evidence is presented that supports the main hypothesis that competition and corruption are negatively related

a basic new keynesian dsge model with dispersed information an agent based approach abstract the aim of this paper is to bridge macro agent based models with mainstream macroeconomic models by agentifying the baseline new keynesian dsge model the model features multiple boundedly rational optimizing agents and is analyzed through numerical simulations we exploit the flexibility of agent based modeling to explore the effect of dispersed information on the learning process and on macroeconomic outcomes we find that with dispersed information monetary and fiscal policy acquire the role of public signals

optimal policy intervention constrained obfuscation and the social value of public information we study the welfare implications of public information precision in a beauty contest framework allowing for optimal stabilization policies and information obfuscation when policy makers ability to obfuscate information is constrained increasing public information precision can be welfare improving

signaling in a global game coordination and policy traps this paper introduces signaling in a global game so as to examine the informational role of policy in coordination environments such as currency crises and bank runs while exogenous asymmetric information has been shown to select a unique equilibrium we show that the endogenous information generated by policy interventions leads to multiple equilibria the policy maker is thus trapped into a position in which self fulfilling expectations dictate not only the coordination outcome but also the optimal policy this result does not rely on the freedom to choose out of equilibrium beliefs nor on the policy being a public signal it may obtain even if the policy is observed with idiosyncratic noise

signalling effects of monetary policy we develop a dynamic general equilibrium model in which the policy rate signals the central bank s view about macroeconomic developments to price setters the model is estimated with likelihood methods on a u s data set that includes the survey of professional forecasters as a measure of price setters inflation expectations this model improves upon existing perfect information models in explaining why in the data inflation expectations respond with delays to monetary impulses and remain disanchored for years in the 1970s u s monetary policy is found to signal persistent inflationary shocks explaining why inflation and inflation expectations were so persistently heightened the signalling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s

signals from the government policy disagreement and the transmission of fiscal shocks we investigate the effects of fiscal policy communication on the propagation of government spending shocks to this aim we propose a new index measuring the coordination effects of policy communication on private agents expectations this index is based on the disagreement amongst us professional forecasters about future government spending the underlying intuition is that a clear fiscal policy communication can coalesce expectations reducing disagreement results indicate that in times of low disagreement the output response to fiscal spending innovations is positive and large mainly due to private investment response conversely periods of elevated disagreement are characterised by muted output response

the signaling role of policy actions abstract in an economy affected by shocks that are imperfectly known the monetary instrument takes on a dual stabilizing role as a policy response that directly influences the economy and as a vehicle for information that reveals the central bank s assessment to firms because mark up shocks cannot be neutralized by monetary policy providing firms with more information about these shocks exacerbates their reaction and creates a larger distortion recognizing the signaling role of its instrument the central bank distorts its policy response in order to optimally shape firms beliefs while providing firms with more information is always detrimental to the output gap it has a more subtle effect on price dispersion depending on whether information is provided through the transparency channel or through the signaling channel although more transparency is always detrimental to welfare the information that is conveyed by the monetary instrument improves welfare when firms coordination is highly valuable

efficient use of information and social value of information this paper analyzes equilibrium and welfare for a tractable class of economies games that have externalities strategic complementarity or substitutability and heterogeneous information first we characterize the equilibrium use of information complementarity heightens the sensitivity of equilibrium actions to public information raising aggregate volatility whereas substitutability heightens the sensitivity to private information raising cross sectional dispersion next we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective the efficient use of information reflects the social value of aligning choices across agents finally we examine the comparative statics of equilibrium welfare with respect to the information structure the social value of information is best understood by classifying economies according to the inefficiency if any in the equilibrium use of information we conclude with a few applications including production externalities beauty contests business cycles and large cournot and bertrand games

optimal monetary policy when information is market generated endogenous i e market generated signals observed by firms have crucial implications for monetary policy when information is endogenous firms gather a demand signal from their market that is both real and nominal as a result the traditional surprise channel of monetary policy is absent instead monetary policy works through a signaling channel as it affects firms information through the demand signal the optimal policy is then the signaling policy i e the policy that maximizes the information content of the demand signal in our setup the signaling policy targets a positive correlation between money supply and prices which emphasizes the natural response of prices to real shocks on the contrary in the more traditional case of exogenous information optimal monetary policy would stabilize prices as it acts through the surprise channel we show that the signaling policy is optimal regardless of the amount of attention that firms pay to central bank communication

optimal monetary policy with uncertain fundamentals and dispersed information this paper studies optimal monetary policy in a model where aggregate fluctuations are driven by the private sector s uncertainty about the economy s fundamentals information on aggregate productivity is dispersed across agents and there are two aggregate shocks a standard productivity shock and a noise shock affecting public beliefs about aggregate productivity neither the central bank nor individual agents can distinguish the two shocks when they are realized despite the lack of superior information monetary policy can affect the economy s relative response to the two shocks as time passes better information on past fundamentals becomes available the central bank can then adopt a backward looking policy rule based on more precise information about past shocks by announcing its response to future information the central bank can influence the expected real interest rate faced by forward looking consumers with different beliefs and thus affect the equilibrium allocation if the announced future response is sufficiently aggressive the central bank can completely eliminate the effect of noise shocks however this policy is typically suboptimal as it leads to an excessively compressed distribution of relative prices the optimal monetary policy balances the benefits of aggregate stabilization with the costs in terms of cross sectional efficiency copyright wiley blackwell