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Public Information and Monetary Policy

Author

Listed:
  • Ted Temzelides

    (University of Pittsburgh)

  • Cyril Monnet

    (FRB Philadelphia)

  • Marie Hoerova

    (ECB)

Abstract

We study the nature of monetary policy in a model where uncertainty can lead to a discrepancy between economic agents' beliefs and true fundamentals. Monetary policy transmits information about fundamentals. The public nature of this information can help agents to coordinate their decisions. This comes at a cost, however, since monetary policy may lead the private sector to coordinate on the wrong fundamentals and it may result in inflation. We discuss conditions under which monetary policy will be unambiguously welfare-improving. We formalize the notion that monetary policy is equivalent to information revelation by the central bank, and offer an information-based (as opposed to the standard liquidity-based) argument for why higher nominal rate hikes occur less frequently than lower ones.

Suggested Citation

  • Ted Temzelides & Cyril Monnet & Marie Hoerova, 2008. "Public Information and Monetary Policy," 2008 Meeting Papers 5, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:5
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    References listed on IDEAS

    as
    1. George-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," American Economic Review, American Economic Association, vol. 94(2), pages 91-98, May.
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    5. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
    6. Stephen Morris & Hyun Song Shin, 2008. "Coordinating Expectations in Monetary Policy," Chapters, in: Jean-Philippe Touffut (ed.), Central Banks as Economic Institutions, chapter 5, Edward Elgar Publishing.
    7. Iván Werning & George-Marios Angeletos, 2006. "Crises and Prices: Information Aggregation, Multiplicity, and Volatility," American Economic Review, American Economic Association, vol. 96(5), pages 1720-1736, December.
    8. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    9. George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2007. "Wall Street and Silicon Valley: A Delicate Interaction," NBER Working Papers 13475, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96, Elsevier.
    2. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs, Bank of Finland, number 2012_047.
    3. repec:zbw:bofism:2012_047 is not listed on IDEAS
    4. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2012_047.

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