Working Paper: CEPR ID: DP5570
Authors: Kosuke Aoki
Abstract: This paper considers the determination of aggregate price level under dispersed information. Central Bank sets policy in response to its noisy measure of the price level, and each agent makes its decisions by observing a subset of data. Information revealed to the agents and Bank is determined endogenously. It is shown that the aggregate state of the economy is not revealed perfectly to anybody but this economy behaves as if it is a representative-agent economy in which the representative agent has perfect information while the Bank has partial information. The Bank has information set affects fluctuations in the price level through its effect on policy.
Keywords: Monetary Policy; Uncertainty
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| central bank's information set (E58) | price level (E30) |
| monetary policy decisions (E52) | price level (E30) |
| dispersed information (D89) | uncertainty for the central bank (E58) |
| uncertainty for the central bank (E58) | policy responses (D78) |
| quality of bank's information (G21) | price level stability (E31) |
| interplay between central bank's information set and private agents' decisions (D83) | price level (E30) |
| dispersed information (D89) | price dynamics (E30) |