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Adverse Effects of Monetary Policy Signalling

Jan Filáček and Jakub Matějů ()

Working Papers from Czech National Bank

Abstract: Assuming information asymmetry between private agents and the central bank about the state of the economy, an unexpected change in interest rates signals the central bank's perceived state of the economy and facilitates an update of private expectations in an adverse, perhaps unintended way. This "updating channel" might counteract the standard transmission from interest rates to inflation and output. We develop a simple model laying down a theoretical basis for the adverse effects of monetary policy signalling. We also detect the presence of the updating channel in private forecasts of inflation in a cross-country sample of selected OECD countries.

Keywords: Asymmetric information; monetary policy; monetary transmission; signalling; updating channel (search for similar items in EconPapers)
JEL-codes: E17 E43 E58 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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