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Does better information about foreign shocks improve monetary policy?

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  • Tan, Kang Yong
  • Tanaka, Misa

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.

Suggested Citation

  • Tan, Kang Yong & Tanaka, Misa, 2010. "Does better information about foreign shocks improve monetary policy?," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1546-1561, December.
    • Handle: RePEc:eee:jimfin:v:29:y:2010:i:8:p:1546-1561
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    References listed on IDEAS

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