Optimal Monetary Policy with Informational Frictions
with George-Marios Angeletos, revise and resubmit, JPE
This paper studies optimal monetary policy in an environment in which firms' pricing and production decisions are subject to informational frictions. [slides]
What are the welfare effects of the information contained in macroeconomic statistics, central-bank communications, or news in the media? We address this question in an elementary DSGE model that allows for incomplete information.
Collateral constraints introduce a feedback between the financial market and the real economy. I show how this feedback can generate expectations-driven fluctuations in asset prices and macroeconomic outcomes when information is dispersed.
Predatory trading may make it exceedingly difficult for banks and financial institutions to raise credit in times of temporary financial distress.
We show that the input-output structure of an economy has important implications for the impact of financial frictions on aggregate activity. The more firms engage in inter-firm trade, the greater the effect of financial frictions.
I construct a dynamic economy in which agents are interconnected in a circular network: the output produced by one agent is the consumption good of another. I show how this economy can generate recessions which resemble traffic jams without the aid of aggregate shocks.
Old Working Papers
Dispersed Information over the Business Cycle: Optimal Fiscal and Monetary Policy
with George-Marios Angeletos, November 2008
(this paper is subsumed by "Optimal Monetary Policy with Informational Frictions")
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