IDEAS home Printed from https://ideas.repec.org/a/vep/journl/y2007v115i4p547-562.html
   My bibliography  Save this article

How Does Information Affect the Comovement Between Interest Rates and Exchange Rates?

Author

Listed:
  • Marcelo SANCHEZ

    (European Central Bank)

Abstract

This paper sets up a small open economy model to compare the link between exchange rates and interest rates under full and imperfect information. The informational friction considered here corresponds to the case where the central bank, while failing to observe output and inflation, can extract some information about these variables from the private sector (asymmetric information with signal extraction). This informational friction generates an optimal deviation from the full information outcome, with the realisation of a relatively less frequent shock leading the central bank to behave as if a more likely disturbance had instead taken place. This indicates that policies that would be optimal under full information are not optimal when knowledge is imperfect.

Suggested Citation

  • Marcelo SANCHEZ, 2007. "How Does Information Affect the Comovement Between Interest Rates and Exchange Rates?," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 115(4), pages 547-562.
    • Handle: RePEc:vep:journl:y:2007:v:115:i:4:p:547-562
    as

    Download full text from publisher

    File URL: http://riss.vitaepensiero.it/scheda-articolo_digital/m-sanchez/how-does-information-affect-the-comovement-between-interest-rates-and-exchange-rates-000518_2007_0004_0073-150892.html
    Download Restriction: Yes
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sánchez, Marcelo, 2010. "Modelling anti-inflationary monetary targeting: with an application to Romania," Working Paper Series 1186, European Central Bank.

    More about this item

    Keywords

    Transmission mechanism; Exchange rate; Optimal monetary policy; Imperfect information;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vep:journl:y:2007:v:115:i:4:p:547-562. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vep - Vita e Pensiero (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.