Citation

Discussion Paper Details

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Title: Noisy Financial Signals and Persistent Effects of Nominal Shocks in Open Economies

Author(s): Torben M Andersen and Niels C Beier

Publication Date: January 2000

Keyword(s): Exchange Rates, Imperfect Information, Learning, Nominal Shocks, Persistence and Temporary And Permanent Shocks

Programme Area(s): International Macroeconomics

Abstract: Floating exchange rates display substantial short-run volatility causing a nontrivial information problem in disentangling temporary from permanent changes. Although agents observe current market signals they are imperfectly informed about the future, but they accumulate information and learn over time. We analyze how this basic information problem in the presence of one-period nominal contracts affects the dynamic adjustment process to nominal shocks. Specifically we use a general equilibrium two-country model with specialized production and one-period nominal contracts and consider the propagation of nominal shocks. Informational problems are shown to have important qualitative and potentially strong quantitative importance for the propagation of nominal shocks.

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Bibliographic Reference

Andersen, T and Beier, N. 2000. 'Noisy Financial Signals and Persistent Effects of Nominal Shocks in Open Economies'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2360