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Adverse Effects of Monetary Policy Signalling

Author

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  • Jan Filacek
  • Jakub Mateju

Abstract

Assuming information asymmetry between private agents and the central bank about the state of the economy, an unexpected change in interest rates signals the central bank's perceived state of the economy and facilitates an update of private expectations in an adverse, perhaps unintended way. This "updating channel" might counteract the standard transmission from interest rates to inflation and output. We develop a simple model laying down a theoretical basis for the adverse effects of monetary policy signalling. We also detect the presence of the updating channel in private forecasts of inflation in a cross-country sample of selected OECD countries.

Suggested Citation

  • Jan Filacek & Jakub Mateju, 2014. "Adverse Effects of Monetary Policy Signalling," Working Papers 2014/13, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2014/13
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric information; monetary policy; monetary transmission; signalling; updating channel;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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