Sticky Information Optimal Monetary Policy Research

The issue of optimal monetary policy is always the disputed focus in the economic theory field and the relevant theories are endless. We can say that all the major schools of economics would explore the practice of monetary policy when they put forward their own theories. The basic of the models in this article are founded on the theory of sticky information proposed by Mankiw and Reis, under which we get the conclusion that price-level targeting is the optimal policy. The article also reviews the implementation of the price level targeting in Swedish, and a comparison has also been done with the popular inflation targeting monetary policy, through comparison we find some outstanding features of price level targeting. Finally, the policy of price level targeting is placed in the broad view of the whole monetary system framework and conditions China needs to practice price level targeting have also been considered. The article is divided into four parts:The first part, the preface puts forward the question and states basic research method and the innovations. Literature review is also included in this part and among the review controversy between discretion with rules and different understandings of monetary rules have been described. Some Chinese scholars also give their views on the optimal policy and which is suitable to China.The second part found the framework of the whole model, and gives a brief introduction of sticky information model and the numerical test of the model with Chinese data. The model of sticky information is used into the framework and a utility function is founded on the base of sticky information. The mathematical expression of the optimal policy can be got through solving the utility function, thus the expression of price level targeting.The third part gives some information about the only practice of price level targeting in Sweden in the history and analyze some advantages of price level targeting from the theoretical level.The forth part gives a preview of the whole monetary system framework under price level targeting, including how to choose intermediate targets and operating objectives to implement price level targeting smoothly. In this part the brief introduction on the condition of Chinese monetary policy has been introduced and some suggestions on the transition to price level targeting followed.