Optimal monetary policy and disclosure with an informationally-constrained central banker

JOURNAL OF MONETARY ECONOMICS, 2022
Iovino, Luigi; La'O, Jennifer; Mascarenhas, Rui
Abstract

We study optimal monetary policy and central bank disclosure when the monetary authority has only incomplete information of the current economic state. Firms make their nominal pricing decisions under uncertainty. We find that implementing flexible-price allocations is both feasible and optimal despite an abundance of measurability constraints; we explore a series of different implementations. When monetary policy is sub-optimal, public information disclosure by the central bank is welfare-improving as long as either firm information or central bank information is sufficiently precise.