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Imperfect information and monetary models: multiple shocks and their consequences

Author

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  • Leon W. Berkelmans
Abstract
This paper examines the role of multiple aggregate shocks in monetary models with imperfect information. Because agents can draw mistaken inferences about which shock has occurred, the existence of multiple aggregate shocks profoundly influences macroeconomic dynamics. In particular, after a contractionary monetary shock these models can generate an initial increase in inflation (the \"price puzzle\") and a delayed disinflation (a \"hump\"). A conservative numerical illustration exhibits these patterns. In addition, the model shows that increased price flexibility is potentially destabilizing.

Suggested Citation

  • Leon W. Berkelmans, 2008. "Imperfect information and monetary models: multiple shocks and their consequences," Finance and Economics Discussion Series 2008-58, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2008-58
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    References listed on IDEAS

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    Cited by:

    1. Mankiw, N. Gregory & Reis, Ricardo, 2010. "Imperfect Information and Aggregate Supply," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 5, pages 183-229, Elsevier.
    2. Kapinos, Pavel, 2011. "Forward-looking monetary policy and anticipated shocks to inflation," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 620-633.

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    Keywords

    Econometric models; Inflation (Finance);

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