Optimal monetary policy with informational frictions

George Marios Angeletos, Jennifer La’o

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


We study optimal policy in a business-cycle setting in which firms hold dispersed private information about, or are rationally inattentive to, the state of the economy. The informational friction is the source of both nominal and real rigidity. Because of the latter, the optimal monetary policy does not target price stability. Instead, it targets a negative relation between the nominal price level and real economic activity. Such leaning against the wind helps maximize production efficiency. An additional contribution is the adaptation of the primal approach of the Ramsey literature to a flexible form of informational friction.

Original languageEnglish (US)
Pages (from-to)1027-1064
Number of pages38
JournalJournal of Political Economy
Issue number3
StatePublished - Mar 1 2020

ASJC Scopus subject areas

  • Economics and Econometrics


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