Journal of Political Economy Vol. 88 No. 2 1980
The Role for Active Monetary Policy in a Rational Expectations Model
Abstract
The role of monetary policy as it affects available information is examined in an equilibrium model of the business cycle. Exogenous, uncertain changes in the expected return to capital assets relative to money holding are shown to induce revisions in investors' desired portfolios. Under a passive policy, asset market equilibrium requires a change in the value of money, which, if imperfectly perceived, detracts from the signaling aspect of observed prices. Active money growth feedback rules are examined as altering the prospective return to money holding. A policy may be designed to maintain the relative attractiveness between real capital and money even if the controlling authority has no informational advantage. Such a policy is shown to obviate the need for portfolio revisions to assure informational efficiency.
- DOI
- 10.1086/260863
- Volume
- 88
- Issue
- 2
- Pages
- 221-233
- Language
- en
- Sources
- openalex crossref