| This dissertation presents three essays in monetary economics. In first chapter, I consider welfare effects of transparency that are an important consideration for the design and conduct of public policies in many economies. Recent literature has shown that transparency in communication of public information may have negative welfare effects due to coordination motives. The main focus of this literature is on the disparity between the equilibrium use of information and the efficient use of information. In a fully micro-founded general equilibrium model I show that an increase in the precision of public information can also lead to an increase in the equilibrium markup charged by the monopolistic firms. I use this result to demonstrate that when agents are sufficiently risk-averse and the information set is dominated by public information greater transparency reduces social welfare. In economies where agents are less risk-averse greater transparency improves social welfare. The model also suggests a theoretical relationship between real variables like total markup and the dispersion in beliefs about nominal variables that is consistent with empirical data.;In second chapter I discuss credit market imperfections that often play an important role in generating, propagating, and amplifying real and nominal shocks to the economy. I develop a dynamic stochastic general equilibrium model with credit market frictions by extending the baseline financial accelerator model with an explicit bank capital channel. This extension strengthens the effect of real and nominal shocks in the DSGE model, and also provides more realistic dynamics for the loans provided to the production sector.;In third chapter, I consider the issue of welfare effects of transparency of communication of public information in the context of the model discussed by Morris and Shin (2002). They show that transparency in communication of public information may have negative welfare effects. However Svensson (2005) points out the negative-welfare results apply in a localized range of values of precision of public signal and if public signal is sufficiently precise, transparency has positive welfare effects. I show transparency of public information may diminish the optimal diversity in the actions of economic agents with complementarities in action, and thus may be detrimental for welfare even when public information is arbitrarily precise. |
