Informational Efficiency, Interest Rate Variability, and Central Bank Operations

Publication Date:

March 1, 1997

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

It is shown how the frequency of central bank intervention in financial markets can affect the incentives for economic agents to acquire information, which will be reflected in market prices and thus become available to policy makers. The optimal frequency of intervention, and therefore the optimal interest rate variability, will balance the desirability of attaining given operational targets against the benefits of encouraging informational efficiency. The ability of the central bank to send clear signals of its own intentions will also depend on market informational efficiency.

Series:

Working Paper No. 1997/026

Subject:

Banking Money markets

English

Publication Date:

March 1, 1997

ISBN/ISSN:

9781451844344/1018-5941

Stock No:

WPIEA0261997

Pages:

30

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