An informational role of policy arises in economies where large fluctuations are triggered by selffulfilling expectation switches between efficient "optimism" and inefficient "pessimism," a feature that is common in many dynamic economies with coordination failures. Policy affects the...

How should policy be optimally designed when a monetary authority faces a private sector that is skeptical about policy announcements and makes inferences about the monetary authority’s ability to follow through on policy plans from economic data? To provide an answer to this question, we...