Money talks

Marie Hoerova, Cyril Monnet and Ted Temzelides

No 1091, Working Paper Series from European Central Bank

Abstract: We study credible information transmission by a benevolent Central Bank. We consider two possibilities: direct revelation through an announcement, versus indirect information transmission through monetary policy. These two ways of transmitting information have very different consequences. Since the objectives of the Central Bank and those of individual investors are not always aligned, private investors might rationally ignore announcements by the Central Bank. In contrast, information transmission through changes in the interest rate creates a distortion, thus, lending an amount of credibility. This induces the private investors to rationally take into account information revealed through monetary policy. JEL Classification: D80, E40, E52

Keywords: information; interest rates; monetary policy (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-cba, nep-cta, nep-dge, nep-mac and nep-mon
Note: 919428
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Citations: View citations in EconPapers (8)

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Journal Article: Money talks (2012)
Working Paper: Money talks (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091091

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