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Price-level determination under dispersed information and monetary policy

By 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

Topics: HB Economic Theory
Publisher: Centre for Economic Policy Research
Year: 2006
OAI identifier: oai:eprints.lse.ac.uk:5313
Provided by: LSE Research Online
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