Palmqvist, Stefan () (University of California, Berkeley)
Abstract
This paper analyzes the use of announcements of objectives or intentions, announcements which are common in implementation of monetary policy. To analyze such announcements, this paper uses a model in which there is asymmetric information over the central bank´s objectives. This informational asymmetry is represented by a stochastic inflation target, upon which only the central bank can condition its actions. Thus, the scope is set for signalling, and the use of announcements can be seen as a way for a central bank to signal its type. This paper assumes that a central bank can signal at its own discretion and shows that while central banks with high inflation targets never use announcements, central banks with low inflation targets occasionally, but not always, will choose to reveal their private information through an announcement. A first finding is that, contrary to what a cheap-talk equilibrium suggests, the announcements may be more precise the larger the central bank´s news. Moreover, this paper shows that the frequency of announcements is unambiguously increasing in the magnitude of the central bank´s news, something that goes well in line with what is typically found in actual implementation of monetary policy.
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Publisher Info
Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number
663.
Length: 28 pages Date of creation: 05 Jan 1999 Date of revision: Handle: RePEc:hhs:iiessp:0663
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Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Glenn Rudebusch & Lars E.O. Svensson, 1999.
"Policy Rules for Inflation Targeting,"
NBER Chapters,
in: Monetary Policy Rules, pages 203-262
National Bureau of Economic Research, Inc.
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