Signalling in a Model of Monetary Policy with Incomplete Information.

The expectations of the public about future macroeconomic policy depend in part upon the preferences that they believe the policymaker to have. For example, when the policymaker is "dry", i.e., more concerned about low inflation than low unemployment, lower inflation might be expected than when he is "wet." Thus, there is an incentive for the policymaker to influence expectations about his preferences by means of his current policy decisions. This paper uses R. Barro and D. Gordon's natural rate model and draws on recent work in oligopoly to investigate the use of monetary policy as a signal of the policymaker's preference