This paper sets up a small open economy model to compare the link between exchange rates
and interest rates under full and imperfect information. The informational friction considered here
corresponds to the case where the central bank, while failing to observe output and inflation, can extract
some information about these variables from the private sector (asymmetric information with
signal extraction). This informational friction generates an optimal deviation from the full information
outcome, with the realisation of a relatively less frequent shock leading the central bank to behave
as if a more likely disturbance had instead taken place. This indicates that policies that would
be optimal under full information are not optimal when knowledge is imperfect.