"This paper studies the consequences of a lack of common knowledge in the transmission of monetary policy by integrating the Woodford (2003a) imperfect common knowledge model with Taylor-Calvo staggered price-setting models. The average price set by monopolistically competitive firms who can on...

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Bibliographic Details

Main Author:	Fukunaga, Ichiro (Author)
Format:	Book
Language:	English
Published:	Tokyo IMES 2006
Series:	Discussion paper series / Institute for Monetary and Economic Studies, Bank of Japan 2006,5
Subjects:	Inflation (Finance) Monetary policy Prices Wages
Summary:	"This paper studies the consequences of a lack of common knowledge in the transmission of monetary policy by integrating the Woodford (2003a) imperfect common knowledge model with Taylor-Calvo staggered price-setting models. The average price set by monopolistically competitive firms who can only observe the state of the economy through noisy private signals depends on their higher-order expectations about not only the current state but also about the states in the future periods in which prices are to be fixed. This integrated model provides a plausible explanation for the observed effects of monetary policy: it shows analytically how price adjustments are delayed and how the response of output to monetary disturbances is amplified. I also consider a more general information structure in which a noisy public signal, in addition to the private signals, is introduced."--Author's abstract.
Physical Description:	28 S. graph. Darst.