The purpose of this paper is to argue that the pursuit of an activist monetary policy may make economic sense even when people's expectations are formed rationally. The paper presents a simple model in which (1) prices are costly to adjust, (2) there is uncertainty concerning the parameters affecting aggregate demand, and (3) there are positive costs of gathering and processing information. By reference to this model it can be shown that an activist monetary policy may or may not be useful in offsetting aggregate disturbances, depending upon the extent of information costs and of parameter uncertainty.

The purpose of this paper is to argue that the pursuit of an activist monetary policy may make economic sense even when people's expectations are formed rationally. The paper presents a simple model in which (1) prices are costly to adjust, (2) there is uncertainty concerning the parameters affecting aggregate demand, and (3) there are positive costs of gathering and processing information. By reference to this model it can be shown that an activist monetary policy may or may not be useful in offsetting aggregate disturbances, depending upon the extent of information costs and of parameter uncertainty.