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Money talks

Author

Listed:
  • Hoerova, Marie
  • Monnet, Cyril
  • Temzelides, Ted

Abstract

We study credible information transmission by a benevolent Central Bank. We consider two possibilities: direct revelation through an announcement, versus indirect information transmission through monetary policy. These two ways of transmitting information have very different consequences. Since the objectives of the Central Bank and those of individual investors are not always aligned, private investors might rationally ignore announcements by the Central Bank. In contrast, information transmission through changes in the interest rate creates a distortion, thus, lending an amount of credibility. This induces the private investors to rationally take into account information revealed through monetary policy. JEL Classification: D80, E40, E52

Suggested Citation

  • Hoerova, Marie & Monnet, Cyril & Temzelides, Ted, 2009. "Money talks," Working Paper Series 1091, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20091091
    Note: 919428
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1091.pdf
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    Other versions of this item:

    • Marie Hoerova & Cyril Monnet & Ted Temzelides, 2009. "Money talks," Working Papers 09-18, Federal Reserve Bank of Philadelphia.

    Citations

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    Cited by:

    1. Issing, Otmar, 2012. "Central banks: Paradise lost," CFS Working Paper Series 2012/06, Center for Financial Studies (CFS).
    2. Sebastian Gomez-Barrero & Julian A. Parra-Polania, 2014. "Central Bank Strategic Forecasting," Contemporary Economic Policy, Western Economic Association International, vol. 32(4), pages 802-810, October.
    3. Denis Beau & Christophe Cahn & Laurent Clerc & Benoît Mojon, 2014. "Macro-Prudential Policy and the Conduct of Monetary Policy," Central Banking, Analysis, and Economic Policies Book Series, in: Sofía Bauducco & Lawrence Christiano & Claudio Raddatz (ed.),Macroeconomic and Financial Stability: challenges for Monetary Policy, edition 1, volume 19, chapter 9, pages 273-314, Central Bank of Chile.
    4. Jean-Claude Trichet, 2009. "Credible alertness revisited," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 437-460.
    5. Julian A. Parra-Polania, 2012. "Transparency: can central banks commit to truthful communication?," Borradores de Economia 9614, Banco de la Republica.
    6. Paul Bloxham & Christopher Kent & Michael Robson, 2010. "Asset Prices, Credit Growth, Monetary and Other Policies: An Australian Case Study," RBA Research Discussion Papers rdp2010-06, Reserve Bank of Australia.
    7. Schwaab, Bernd & Eser, Fabian, 2013. "Assessing asset purchases within the ECB’s securities markets programme," Working Paper Series 1587, European Central Bank.
    8. Eser, Fabian & Schwaab, Bernd, 2016. "Evaluating the impact of unconventional monetary policy measures: Empirical evidence from the ECB׳s Securities Markets Programme," Journal of Financial Economics, Elsevier, vol. 119(1), pages 147-167.
    9. Alessi, Lucia & Detken, Carsten, 2011. "Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity," European Journal of Political Economy, Elsevier, vol. 27(3), pages 520-533, September.
    10. Panzera, Fabio S., 2011. "Price stability and financial imbalances: rethinking the macrofinancial framework after the 2007-8 financial crisis," FSES Working Papers 423, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    11. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    12. Giuseppe Ferrero & Marcello Miccoli & Sergio Santoro, 2014. "Informational Effects of Monetary Policy," Temi di discussione (Economic working papers) 982, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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