The signaling role of policy action

Romain Baeriswyl and Camille Cornand

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: This paper analyzes the conduct of the optimal monetary policy with imperfect information on the shocks hitting the economy where firms’ prices are strategic complements. Monetary policy entails a dual stabilizing role, as a policy response that influences directly the economy and as a vehicle for information that shapes firms’ beliefs. In the case where more information is welfare detrimental, the central bank faces a dilemma, for its monetary instrument aimed at stabilizing the economy may harmfully shape firms’ beliefs. Recognizing the signaling role of its instrument, the central bank finds it optimal to distort its policy response in order to mitigate the detrimental information that it may convey.

Keywords: differential information; monetary policy; transparency. (search for similar items in EconPapers)
JEL-codes: D82 E52 E58 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-cta, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (89)

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Journal Article: The signaling role of policy actions (2010)
Working Paper: The signaling role of policy actions (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2010-04

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