REPUTATIONAL AND NONREPUTATIONAL POLICIES UNDER PARTIAL INFORMATION

This paper analyses the effect of partial information on optimal policy design for stochastic macroeconomic models incorporating forward-looking expectations. The main theoretical result is that reputational and nonreputational policies are certainty-equivalent, as has previously been conjectured, and it is also shown that the welfare loss does not necessarily increase with decreasing information. Of particular additional interest in the analysis of reputational policy design is the issue of sustainability, and it is shown using an example that weak sustainability may be information-dependent.