Working Paper: CEPR ID: DP14577
Authors: Georgemarios Angeletos; Luigi Iovino; Jennifer Lao
Abstract: This paper studies the policy implications of the endogeneity of information about the state of the economy. The business cycle can be made less noisy, and more efficient, by incentivizing firms to vary their pricing and production decisions more with their beliefs about the state of the economy. This calls for countercyclical taxes complemented by a monetary policy that “leans against the wind.” The optimal policies trade-off allocative efficiency for informational efficiency.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy interventions (D78) | improved economic efficiency (D61) |
| endogeneity of information (D83) | efficiency of the business cycle (E32) |
| policy interventions (D78) | noise in the business cycle (E32) |
| design of policies (D78) | degree of efficiency in the economy (D61) |
| tax policies (H29) | information aggregation (D83) |
| welfare losses due to incomplete information (D89) | mitigated through appropriate tax policies (H29) |