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Essays in monetary and information economics
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Marcu, Bogdan (2022) Essays in monetary and information economics. PhD thesis, University of Warwick.
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Official URL: http://webcat.warwick.ac.uk/record=b3912199~S15
Abstract
Broadly, the thesis concerns information aggregation in large populations of agents, each of whom has his own “window on the world” (i.e. some imperfect and private information regarding the state of the world). The thesis explores how a policymaker may seek to use the information revealed by the agents’ actions to improve social welfare via information disclosures, or via the setting of a policy instrument. In particular, it studies how the policymaker’s actions may distort the agents’ incentives to acquire (or process) information and, in turn, how this influences the information revealed by the agents’ actions and hence the policymaker’s ability to improve social welfare in the first place. The three chapters are summarised below.
In chapter 1, I analyse the social value of public information in the context of a static prediction model, where each agent has access to two information sources: a (costly) private signal of the fundamental and a (free) public signal of the average prediction of the other agents. I argue that providing more precise public information (about the average prediction) is welfare-improving only up to a certain threshold, above which it crowds out the acquisition of private information and no longer affects welfare (i.e. if public information is already sufficiently precise such that some agents do not acquire the private signal in equilibrium, then further increasing the precision of public information will not affect welfare).
In chapter 2, I study optimal monetary policy in a setting where firms are rationally inattentive and the central bank learns about fundamentals by observing market prices. I argue that optimal policy minimizes the central bank’s own information precision about fundamentals, and I discuss the implications of this tension. The model provides an informational rationale for increased policy activism at times of high aggregate volatility (for instance, during recessions) and for a higher degree of monetary neutrality during such times.
In chapter 3, I again analyse the relationship between optimal policy intervention and price informativeness, but I also account for parameter uncertainty in the spirit of Brainard (1967), i.e. uncertainty regarding the transmission of policy itself. I argue that under parameter uncertainty, the central bank cannot perfectly disentangle the effects of its policy from fundamental shocks moving prices, so policy intervention necessarily crowds out some of the information (concerning fundamentals) which is contained in prices. In terms of central bank learning, this leads to a similar trade-off as in Balvers and Cosimano (1994).
Item Type: | Thesis (PhD) | ||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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Library of Congress Subject Headings (LCSH): | Monetary policy, Economics -- Mathematical models, Information theory in economics | ||||
Official Date: | March 2022 | ||||
Dates: |
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Institution: | University of Warwick | ||||
Theses Department: | Department of Economics | ||||
Thesis Type: | PhD | ||||
Publication Status: | Unpublished | ||||
Supervisor(s)/Advisor: | Polemarchakis, H. M. (Heraklis M.) | ||||
Sponsors: | Economic and Social Research Council (Great Britain) | ||||
Format of File: | |||||
Extent: | iv, 141 leaves : illustrations | ||||
Language: | eng |
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