The Short-Run Effects of Unanticipated Monetary Shocks Under Distinct Trading Mechanisms

Abstract

We unveil the existence of a trade-o ff between e ffi ciency and information transmission in a decentralized economy subject to a monetary shock. If the objective is to maximize information transmission, then the optimal trading protocol is inherently ine ffi cient. If, instead, the objective is to maximize e ffi ciency, then the optimal trading protocol is necessarily uninformative.