Optimal monetary policy when information is market-generated

Blengini, Isabella (Ecole hôtelière de Lausanne, HES-SO // University of Applied Sciences Western Switzerland) ; Benhima, Kenza (University of Lausanne)

In this paper we show that endogenous - i.e. market-generated - signals observed by the private sector have crucial implications for monetary policy. When informationis endogenous, achieving the optimum through price stabilization is elusive. The optimal policy then consists, on the contrary, in exacerbating the natural response of.prices to shocks. In our framework, where supply shocks are naturally deflationary, optimal policy is then countercyclical, whereas the standard price-stabilizing policy would have been procyclical. The role of endogenous signals is indep endent of the possibility of the central bank to directly communicate its private information through public announcements.


Keywords:
Conference Type:
full paper
Faculty:
Economie et Services
School:
EHL
Subject(s):
Economie/gestion
Publisher:
Geneva, Switzerland, 22-26 August 2016
Date:
Geneva, Switzerland
22-26 August 2016
2016
Pagination:
40 p.
Published in:
Proceedings of the European Economic Association Meeting
Appears in Collection:



 Record created 2016-10-27, last modified 2019-06-11

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