Learning from Prices: Central Bank Communication and Welfare

Joint with: Pierre-Olivier Weill

We present a micro-founded monetary economy where agents are uncertain about both an aggregate productivity parameter and the monetary aggregate. We show that when agents learn from the distribution of prices, an increase in public information about the monetary aggregate can reduce the information content of the price system and welfare. In a simple extension to the basic model, we show that the economy can have indeterminacy, generating a new role for monetary announcements.

For more information, contact Iourii Manovskii.