Exchange-rate policy and monetary information

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This paper develops a model of a small open economy in which the presence of local deviations from purchasing power parity give rise to differential information. It is assumed that the monetary authorities are committed to buy and sell foreign exchange in order to support an exchange-rate policy rule. It is demonstrated that exchange-rate policy can influence the distribution of real output (i) if agents possess incomplete and differential information and (ii) if they have contemporaneous money supply (or balance of payments) information. It is also shown that exchange-rate policy can be effective because of its ability to influence the information content of available monetary data. The argument is turned around and used to support the frequent release of monetary data. © 1983 Butterworth & Co (Publishers) Ltd.






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Kimbrough, KP (1983). Exchange-rate policy and monetary information. Journal of International Money and Finance, 2(3). pp. 333–346. 10.1016/S0261-5606(83)80007-2 Retrieved from

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Kent P. Kimbrough

Professor of Economics

Professor Kimbrough specializes in the fields of macroeconomics and international economics. His latest research explores the revenue maximizing inflation rate, optimal taxes and tariffs in the presence of private information, the welfare costs of inflation, and interest rate rules and uniqueness in the presence of transactions costs. In prior work he has investigated the macroeconomic effects of trade policy, the impact of bilateral tariffs, foreign exchange controls and capital controls, the real effects of inflation, optimal taxation and Friedman’s rule, and the information content of prices and the role of monetary policy. His most recent published work investigates “Optimal Taxes and Tariffs with Private Information” and “Revenue Maximizing Inflation.” His earlier work explored such subjects as “Price, Output, and Exchange Rate Movements in the Open Economy,” “Aggregate Information and the Role of Monetary Policy in an Open Economy,” “Foreign Aid and Optimal Fiscal Policy,” “An Investigation in the Theory of Foreign Exchange Controls,” “The Optimum Quantity of Money Rule in the Theory of Public Finance,” and “Tax Regimes, Tariff Revenues, and Government Spending.”

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