Creator: Levine, David K. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 388 Abstract:
Previous authors have argued that the optimal monetary policy is contractionary. If buyers value consumption substantially more than sellers, there is some randomness and informational constraints make asset trading useful, we show that there is an incentive compatible expansionary policy that dominates all incentive compatible contractionary policies.
Keyword: Optimal monetary policy, Contraction, Trade, Private information, Asset trading, and Expansion Subject (JEL): D82 - Asymmetric and Private Information; Mechanism Design and E52 - Monetary Policy