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Optimal Informational Interest Rate Rule

Author

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  • Marta Areosa
  • Waldyr Areosa
  • Vinicius Carrasco

Abstract

We use a sticky-dispersed information model to analyze how price setting changes when the interest rate is understood as a public signal that informs the view of the monetary authority on the current state of the economy. Firms use information to infer one another´s prices, as they face strategic complementarity on pricing decision. We build a counterfactual to isolate the informational effect of the interest rate and study its influence on inflation dynamics. We also obtain the optimal parameters of the policy instrument (regarding three different efficiency criteria), considering that the central bank knows that firms take information from its actions.

Suggested Citation

  • Marta Areosa & Waldyr Areosa & Vinicius Carrasco, 2021. "Optimal Informational Interest Rate Rule," Working Papers Series 553, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:553
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps553.pdf
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    References listed on IDEAS

    as
    1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
    2. Areosa, Marta B. M. & Areosa, Waldyr D. & Carrasco, Vinicius, 2020. "A Sticky–Dispersed Information Phillips Curve: A Model With Partial And Delayed Information," Macroeconomic Dynamics, Cambridge University Press, vol. 24(4), pages 747-773, June.
    3. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    4. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
    5. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
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    Cited by:

    1. Marta Baltar Moreira Areosa & Wagner Piazza Gaglianone, 2023. "Anchoring Long-term VAR Forecasts Based On Survey Data and State-space Models," Working Papers Series 574, Central Bank of Brazil, Research Department.

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