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Informational Implications of Interest Rate Rules

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  • Dotsey, Michael
  • King, Robert G

Abstract

This paper compares interest rate and money supply rules. The analysisis conducted within a rational expectations macro model that incorporates flexible prices and informational frictions. With differential information, interest rate targets can affect the information content of market prices and real activity, but these realconsequences can always be replicated by an appropriately chosen moneystock rule with feedback to economic activity. However, when the policyauthority lacks information about the state of the economic system, itfaces a discrete choice between an interest rate peg and strict moneystock control. Copyright 1986 by American Economic Association.

Suggested Citation

  • Dotsey, Michael & King, Robert G, 1986. "Informational Implications of Interest Rate Rules," American Economic Review, American Economic Association, vol. 76(1), pages 33-42, March.
    • Handle: RePEc:aea:aecrev:v:76:y:1986:i:1:p:33-42
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    Cited by:

    1. Marvin Goodfriend, 1993. "Interest rate policy and the inflation scare problem: 1979-1992," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    2. Yuriy Gorodnichenko, 2008. "Endogenous information, menu costs and inflation persistence," NBER Working Papers 14184, National Bureau of Economic Research, Inc.
    3. Berkelmans, Leon, 2011. "Imperfect information, multiple shocks, and policy's signaling role," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 373-386.
    4. Michael Dotsey, 1985. "Monetary policy, secrecy, and federal funds rate behavior," Working Paper 85-04, Federal Reserve Bank of Richmond.
    5. Sell, Friedrich L. & Kermer, Silvio, 2006. "William Poole in der modernen Makroökonomik: Exegese des ursprünglichen Beitrags und seiner Fortentwicklungen für die offene Volkswirtschaft," Working Papers in Economics 2006,3, Bundeswehr University Munich, Economic Research Group.
    6. Giulia Ghiani & Max Gillman & Michal Kejak, 2016. "Persistent Liquidity," Working Papers 1010, University of Missouri-St. Louis, Department of Economics.
    7. Benjamin M. Friedman, 1988. "Targets and Instruments of Monetary Policy," NBER Working Papers 2668, National Bureau of Economic Research, Inc.
    8. Michael Dotsey, 1991. "Open Market Operations in Australia: A US Perspective," The Economic Record, The Economic Society of Australia, vol. 67(3), pages 243-256, September.
    9. repec:bla:ecorec:v:67:y:1991:i:196:p:1-13 is not listed on IDEAS
    10. Dellas, Harris, 2003. "The Informational Role of the Business Cycle," CEPR Discussion Papers 4076, C.E.P.R. Discussion Papers.
    11. Michael Dotsey, 1999. "The importance of systematic monetary policy for economic activity," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 41-60.

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