Optimal Monetary Policy and Transparency under Informational Frictions

26 Pages Posted: 20 Dec 2012 Last revised: 10 Feb 2016

See all articles by Wataru Tamura

Wataru Tamura

Nagoya University - Graduate School of Economics

Date Written: February 10, 2016

Abstract

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 mark-ups. 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.

Keywords: optimal monetary policy, disclosure policy, policy signaling, informational frictions

JEL Classification: E31, E52, D83

Suggested Citation

Tamura, Wataru, Optimal Monetary Policy and Transparency under Informational Frictions (February 10, 2016). Available at SSRN: https://ssrn.com/abstract=2191900 or http://dx.doi.org/10.2139/ssrn.2191900

Wataru Tamura (Contact Author)

Nagoya University - Graduate School of Economics ( email )

1 Furo-cho
Chikusa-ku
Nagoya, 464-8601
Japan

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