Money Talks

38 Pages Posted: 16 Oct 2009

See all articles by Marie Hoerova

Marie Hoerova

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Cyril Monnet

University of Bern

Ted P. Loch-Temzelides

Rice University

Multiple version iconThere are 3 versions of this paper

Date Written: September 30, 2009

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.

Keywords: information, interest rates, monetary policy

JEL Classification: D8, E4, E52

Suggested Citation

Hoerova, Marie and Monnet, Cyril and Loch-Temzelides, Ted P., Money Talks (September 30, 2009). ECB Working Paper No. 1091, Available at SSRN: https://ssrn.com/abstract=1469566

Marie Hoerova (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Cyril Monnet

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

Ted P. Loch-Temzelides

Rice University ( email )

99 Sunset Blvd
Houston, TX Texas 77005
United States

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