Imperfect information, multiple shocks, and policy's signaling role

Berkelmans, Leon

doi:10.1016/j.jmoneco.2011.07.002

Cited by 18 publications

(9 citation statements)

References 29 publications

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“…Previous work has considered the information effect from a theoretical perspective using a number of vantage points: central bank credibility (Barthélemy and Mengus 2018), central bank information (Ellingsen and Söderström 2001;Frankel and Kartik 2018), the central bank reaction function (Brassil 2019), uncertainty (Tang 2015), the presence of other economic shocks (Berkelmans 2011), the type of economic shock (Jia 2019), dispersed information (Melosi 2017) or heterogeneous beliefs among agents (Andrade et al 2019). Jointly these papers provide useful context on how the information effect could occur.…”

Section: Literature Reviewmentioning

confidence: 99%

Monetary Policy, Equity Markets and the Information Effect

He¹

2021

RBA Research Discussion Papers

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Central banks analyse copious amounts of information to assess the economic outlook to then set monetary policy. So, could changes in monetary policy reveal some additional information about the economic outlook to the public? This channel is known as the 'information effect'. The information effect posits that, in addition to the usual effects of monetary policy, agents interpret an interest rate increase as signalling some additional positive economic information. This effect, if strong enough, could then lead to dynamics where an increase in interest rates causes an expansion in economic activity. I evaluate whether the information effect can be detected in Australia through the lens of equity markets. I find that, contrary to the predictions of the information effect, a surprise monetary tightening from a monetary policy announcement causes equity prices to fall. I also show that this response in equity prices is, at least in part, driven by downward adjustments in expected earnings growth. These responses are consistent with conventional views of the effects of monetary policy. However, looking beyond monetary policy announcements yields some evidence that an information effect could be present through other forms of Reserve Bank of Australia (RBA) communication. I find speeches delivered by the RBA Governor generate responses in equity prices and earnings forecasts consistent with the information effect. But this result appears to be the exception rather than the rule. For most monetary policy communication, at least in equity markets, the information effect is not an important channel of monetary policy.

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Section: Literature Reviewmentioning

confidence: 99%

Monetary Policy, Equity Markets and the Information Effect

He¹

2021

RBA Research Discussion Papers

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“…The analysis of optimal policy in dynamic models of dispersed information is complicated by the infinity of lagged higher‐order expectations that is typically relevant for the characterization of equilibrium outcomes in such settings. Nimark (), Berkelmans (), and Kohlhas () study the effects of monetary policy in the presence of dynamic higher‐order expectations when policy is given by an interest rate rule, without explicit consideration of the policymaker's problem.…”

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confidence: 99%

“…The loss of certainty equivalence is a common theme in models of dispersed information; see, for example, Lorenzoni () or Berkelmans ().…”

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confidence: 99%

Managing Beliefs about Monetary Policy under Discretion

Mertens¹

2016

J of Money Credit Banking

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This discussion paper series represents research work-in-progress and is distributed with the intention to foster discussion. The views herein solely represent those of the authors. No research paper in this series implies agreement by the Study Center Gerzensee and the Swiss National Bank, nor does it imply the policy views, nor potential policy of those institutions. Terms of use: Documents in Managing Beliefs about Managing Beliefs about Monetary Policy under Discretion AbstractMonetary policy is most effective when public beliefs about future policies are actively managed. This is the appeal of policy rules and commitment strategies, typically absent under discretion. But when a policymaker has some private information -as is the case in reality -belief management becomes an integral part of optimal discretion policies, too.Solving for optimal policy in a simple New Keynesian model, this paper shows how discretionary losses are reduced when the policymaker has private information. Furthermore, disinflations are pursued more vigorously, when the hidden information problem is larger, even when inflation is partly backward-looking.JEL Classification: E31, E37, E47, E52, E58

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“…Focus on the effect of the signalling channel on the average inflation bias when the central bank has a positive output target. Walsh (2010) and Berkelmans (2011) study the signalling channel under dispersed information using numerical methods. Both studies document that the (perceived or actual) signalling effects of monetary policy can alter the central bank's decisions, resulting in an opacity bias that distorts the central bank's optimal response to shocks.…”

Section: Literature Review 21 Monetary Policymentioning

confidence: 99%