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Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?

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  • Axel Lindner

Abstract

A recent strand of literature shows that multiple equilibria in models of markets for pegged currencies vanish if there is slightly diverse information among traders; see Morris and Shin (2001). It is known that this approach works only if the common knowledge in the market is not too precise. This has led to the conclusion that central banks should try to avoid making their information common knowledge. We develop a model in which more transparency of the central bank implies better private information, because each trader utilises public information according to her own private information. Thus, transparency makes multiple equilibria less likely. Copyright The editors of the "Scandinavian Journal of Economics", 2006 .

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.

Volume (Year): 108 (2006)
Issue (Month): 1 (03)
Pages: 1-14

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Handle: RePEc:bla:scandj:v:108:y:2006:i:1:p:1-14

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Cited by:
  1. Axel Lindner, 2009. "Evaluating Communication Strategies for Public Agencies: Transparency, Opacity, and Secrecy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 29.
  2. Axel Lindner, 2007. "Does too much Transparency of Central Banks Prevent Agents from Using their Private Information Efficiently?," IWH Discussion Papers 16, Halle Institute for Economic Research.
  3. Axel Lindner, 2006. "Original Sin - Analysing Its Mechanics and a proposed Remedy in a Simple Macroeconomic Model," IWH Discussion Papers 11, Halle Institute for Economic Research.
  4. Cruijsen, C.A.B. van der & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency: A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.

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