Differential Information and the Role for an Active Stabilization Policy

Abstract

The paper considers the possibility of pursuing a systematic monetary policy to overcome the coordination problems arising when agents have differential information. It is shown that a monetary feedback rule involving current feedback but no prospective feedback can eliminate the information problem making the implications of the differential information immaterial for real allocations. The paper also considers a private indexation scheme as a substitute for monetary policy, and it is shown that these differ since indexation on currently known variables is neutral. Indexation of a prospective nature is, however, equivalent to a prospective feedback to the money supply.

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