IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v180y2025ics0014292125002260.html
   My bibliography  Save this article

Controlling inflation with central bank news

Author

Listed:
  • Kokonas, Nikolaos
  • Rousakis, Michalis
  • Smyrniotis, Efthymios

Abstract

What determines the stochastic path of inflation? We study this question in a monetary economy featuring imperfect information and rational expectations. The central bank targets inflation and releases noisy information about future non-monetary fundamentals through its non-systematic component. We show that real interest rate increases following such information releases lead the private sector to revise upward its expectations of future output — an outcome arising from “Fed information effects”. Through this channel, central bank communication influences market expectations about the economic outlook, adding further constraints to the equilibrium and ultimately determining the stochastic path of inflation. We propose a novel role for Fed information effects: their ability to serve as a mechanism for equilibrium selection.

Suggested Citation

  • Kokonas, Nikolaos & Rousakis, Michalis & Smyrniotis, Efthymios, 2025. "Controlling inflation with central bank news," European Economic Review, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:eecrev:v:180:y:2025:i:c:s0014292125002260
    DOI: 10.1016/j.euroecorev.2025.105176
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292125002260
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.euroecorev.2025.105176?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    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:eee:eecrev:v:180:y:2025:i:c:s0014292125002260. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    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.