Monetary Policy Games and the Role of Private Information

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Abstract
Consider the following scenario: Monetary aggregates surce ahead of expected or targeted rates; the Fed claims that it is accomodating a perceived increase in money demand in order to stabilize the price level; the private sector (or the Administration, or Congress_ counters taht the Fed is running inflationary policy to expand employment; a period of credibility building ensues, which may focus upon the personalities of policy makers, targeting procedures, or even proposals for lefislative reform. A key elelment in this scenario is that the private sector cannot verify the Fed's claim; the Fed's forecast of money demand is private information.

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