Jan Filáček, Jakub Matějů
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.
JEL codes: E17, E43, E58
Keywords: Asymmetric information, monetary policy, monetary transmission, signalling, updating channel
Issued: December 2014
Download: CNB WP 13/2014 (pdf, 427 kB)