Policy Signaling in the Open Economy: A Re-Examination

Allan Drazen ()

No 5892, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The standard model of signaling used in open economy macroeconomics concentrates on building a reputation when a policymaker's `type' is unknown. Observing tough policy leads market participants to raise the probability that a policymaker is tough, and therefore to expect tough policy in the future. This approach leaves unexplained a number of commonly observed occurrences, for example, toughness in defending an exchange rate leading to increased speculation against the currency. To explain many phenomena, this paper argues, more sophisticated signaling models are needed, models which include signaling of resources rather than preferences, policy affecting the environment in which signals are sent, and exogenous changes in the environment affecting the informativeness of signals. These models are explored and are shown to be able to explain a number of phenomena the standard reputational model cannot.

JEL-codes: E60 F41 (search for similar items in EconPapers)
Date: 1997-01
Note: EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Wolf, H. (ed.) Contemporary Economic Development Reviewed, vol. 5, Macroeconomic Policy and Financial Systems. London: Macmillan, 1997.

Downloads: (external link)
http://www.nber.org/papers/w5892.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:5892

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5892

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().