Rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity, as in the analyses of Sargent and Wallace. However, if agents are differentially informed and have access to a common price, then prospective monetary policy actions--future feedback to imperfectly known current circumstances--can alter real activity by changing the information content of prices.

Rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity, as in the analyses of Sargent and Wallace. However, if agents are differentially informed and have access to a common price, then prospective monetary policy actions--future feedback to imperfectly known current circumstances--can alter real activity by changing the information content of prices.