How Does Information Affect the Comovement Between Interest Rates and Exchange Rates?
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore in its journal Rivista Internazionale di Scienze Sociali.
Volume (Year): 115 (2007)
Issue (Month): 4 ()
Contact details of provider:
Transmission mechanism; Exchange rate; Optimal monetary policy; Imperfect information;
Find related papers by 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
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vep - Vita e Pensiero).
If references are entirely missing, you can add them using this form.