Does better information about foreign shocks improve monetary policy?

Kang Yong Tan, Misa Tanaka

    Research output: Contribution to journalArticle

    Abstract

    This paper examines whether better information about foreign shocks leads to welfare-improving monetary policy using a stylised two-country New Keynesian general equilibrium model. We demonstrate that when terms of trade externality exist and national central banks have the incentives to shift terms of trade in their own favour, the equilibrium under imperfect information may be welfare superior relative to an equilibrium with perfect information. In addition, the welfare gains or losses from information sharing between central banks are found to be small for empirically plausible range of parameters for risk aversion and elasticity of labour supply.
    Original languageEnglish
    Pages (from-to)1546-1561
    JournalJournal of International Money and Finance
    Volume29
    Issue number8
    DOIs
    Publication statusPublished - 2010

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