2007/09/13 by ICHIRO FUKUNAGA, Ichiro Fukunaga · 12 citations
Economics, Econometrics and Finance · #Common knowledge (logic) #Computer science #Economic theories and models #Economics #Finance #Imperfect #Imperfect competition #Italy: Economic History and Contemporary Issues #Macroeconomics #Microeconomics #Monetary Policy and Economic Impact #Monetary economics #Monetary policy #Order (exchange) #Price setting #Set (abstract data type)
paper · pdf · doi:10.1111/j.1538-4616.2007.00084.x
published in Journal of money credit and banking 39(7), 1711-1739 (Wiley)
openalex publication_date 2007/09/13 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
This paper studies the consequences of a lack of common knowledge in the transmission of monetary policy by integrating the Woodford (2003a) imperfect common knowledge model with Taylor–Calvo staggered price‐setting models. The average price set by monopolistically competitive firms depends on their higher‐order expectations about not only the current state of the economy but also about the states in the future periods in which prices are to be fixed. This integrated model provides a plausible explanation for the observed effects of monetary policy: it shows analytically how price adjustments are delayed and how the response of output to monetary disturbances is amplified.