Abstract
Expectation on future monetary policy formed based on the information affect current business cycle. Firms that determine investment projects and households that optimize life-time consumption and savings consider changes in future interest rates as well as current interest rates in their decision making. In the real economy, however, there is a mixture of noise in the information that forms the expectations for future interest rate changes. Noise information represents information that is not actually realized in the future, but believed to do so now for whatever reasons. The corresponding news information is information related to changes in monetary policy actually realized in the future. Until the monetary policy is realized, it is difficult to distinguish between two types of information. In this study, we assume that market participants are faced with the information mix of news and noise, which are used to form expectations for future monetary policy. We investigate how each type of information shock affects current business cycle. In light of the impact of US monetary policy on neighboring countries in the global financial market, we will focus on how news and noise information of the US monetary policy will affect real economic fluctuations and financial variables in neighboring countries.
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