This paper studies optimal monetary policy in a model where aggregate fluctuations are driven by the private sector's uncertainty about the economy's fundamentals. Information on aggregate productivity is dispersed across agents and there are two aggregate shocks: a standard productivity shock...

This paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks. In particular, it shows that competitive financial contracts can result in excessive borrowing "ex ante "and excessive volatility "ex post". Even though from a...

This paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks. In particular, it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post. Even though from a...