Jonathan G. James

Optimal Transparency and Policy Intervention with Heterogeneous Signals and Information Stickiness

This paper investigates optimal central bank disclosure in an economy in which only a proportion of firms adjusts prices each period to reflect current information. Such information comprises a firm-specific signal of the current state of aggregate demand and, potentially (depending on the transparency regime) a public signal disseminated by the central bank. The economy has two sources of price dispersion: first, the heterogeneity of the private signals of firms whose prices always reflect current information, and second, the non-adjustment of prices by firms that fail to update their information from period-to-period. Monetary policy is conducted by the central bank to maximize expected welfare, with the studys focus on the optimal degree of transparency. A key finding is that, for plausible values of model parameters, full transparency cannot be optimal: whether zero or partial transparency is desirable then depends on the proportion of firms failing to update their information each period.

Unions, Monopolistic Competition and the Optimal Monetary Regime

This paper considers the optimal monetary regime in a monopolistically competitive economy where wages are set by non-atomistic (i.e. large) unions. In such a context, the conduct of monetary policy is known to influence not only the equilibrium inflation rate, but also equilibrium employment. Previous contributions which have examined this scenario have commonly concluded that a low degree of accommodation of wages and prices is optimal. This study shows, however, that the frameworks principal features imply a highly accommodating policy stance can potentially achieve a superior outcome and, indeed, despite its character, is able to both eliminate unemployment and deliver zero inflation.