Imperfect information,multipleshocks,andpolicy’ssignalingrole

In multipleshockmodels,whenagentshaveimperfectinformationtheyattemptto infer ashock’stype,inadditiontoitssize.Inthisenvironment,monetarypolicyplays an importantsignalingrole.Thispaperhighlightsthissignalingrolebyshowingthat conclusionsfromimperfectinformationmonetarymodelsaresensitivetothenumber of shocksincluded.Withmultipleshocks,contractionarymonetarypolicycaninitially increaseinflationanddelaytheeventualdisinflation.Moreover,multipleshockscan result indestabilizingpriceflexibility,whileoptimalpolicy’sresponsetooneshock will dependontheexistenceofothershocks,contrarytoatypicallinear-quadratic framework.