NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Policy Signaling in the Open Economy: A Re-Examination

Allan Drazen

NBER Working Paper No. 5892
Issued in January 1997
NBER Program(s):   EFG   IFM

The standard model of signaling used in open economy macroeconomics concentrates on building a reputation when a policymaker's `type' is unknown. Observing tough policy leads market participants to raise the probability that a policymaker is tough, and therefore to expect tough policy in the future. This approach leaves unexplained a number of commonly observed occurrences, for example, toughness in defending an exchange rate leading to increased speculation against the currency. To explain many phenomena, this paper argues, more sophisticated signaling models are needed, models which include signaling of resources rather than preferences, policy affecting the environment in which signals are sent, and exogenous changes in the environment affecting the informativeness of signals. These models are explored and are shown to be able to explain a number of phenomena the standard reputational model cannot.

download in pdf format
   (1239 K)

email paper

This paper is available as PDF (1239 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5892

Published: Wolf, H. (ed.) Contemporary Economic Development Reviewed, vol. 5, Macroeconomic Policy and Financial Systems. London: Macmillan, 1997.

Users who downloaded this paper also downloaded these:
Rodrik w2600 Promises, Promises: Credible Policy Reform via Signaling
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us