Information Acquisition by Price-Setters and Monetary Policy

CER-ETH Working Paper No. 07/73

33 Pages Posted: 5 Sep 2007

Date Written: September 2007

Abstract

In this paper we examine a model where firms decide on the intensity of information acquisition about shocks. We analyze how the monetary policy framework impacts on the aggregate amount of information collected by firms. We show that it is socially beneficial to delegate monetary policy to a conservative central bank even if there are no incentives to push output above its long-run level. Transparency of central banks about economic shocks has ambiguous effects on welfare. If an extreme level of opacity is feasible, it represents the social optimum. Otherwise full transparency may be a second-best solution.

Keywords: conservative central banker, optimal monetary policy, information acquisition, Phillips curve, transparency

JEL Classification: E58, E13, E12

Suggested Citation

Hahn, Volker, Information Acquisition by Price-Setters and Monetary Policy (September 2007). Available at SSRN: https://ssrn.com/abstract=1012313 or http://dx.doi.org/10.2139/ssrn.1012313

Volker Hahn (Contact Author)

University of Konstanz ( email )

Box 143
Konstanz, 78457
Germany

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