Money talks

Marie Hoerova, Cyril Monnet and Ted Loch Temzelides

No 09-18, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The authors study credible information transmission by a benevolent central bank. They 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.

Keywords: Banks and banking, Central; Information theory (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-cta, nep-dge, nep-mac and nep-mon
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Journal Article: Money talks (2012)
Working Paper: Money talks (2009)
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