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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.

Suggested Citation

  • Axel Lindner, 2006. "Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 1-14, March.
  • Handle: RePEc:bla:scandj:v:108:y:2006:i:1:p:1-14
    DOI: 10.1111/j.1467-9442.2006.00436.x
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    References listed on IDEAS

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    1. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2001.
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    Cited by:

    1. König, Philipp & Anand, Kartik & Heinemann, Frank, 2014. "Guarantees, transparency and the interdependency between sovereign and bank default risk," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 321-337.
    2. Camille Cornand & Frank Heinemann, 2009. "Speculative Attacks with Multiple Sources of Public Information," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 73-102, March.
    3. Camille Cornand & Frank Heinemann, 2008. "Optimal Degree of Public Information Dissemination," Economic Journal, Royal Economic Society, vol. 118(528), pages 718-742, April.
    4. Lindner Axel, 2009. "Evaluating Communication Strategies for Public Agencies: Transparency, Opacity, and Secrecy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-18, July.
    5. Lindner, Axel, 2007. "Does too much Transparency of Central Banks Prevent Agents from Using their Private Information Efficiently?," IWH Discussion Papers 16/2007, Halle Institute for Economic Research (IWH).
    6. Philipp König & Kartik Anand & Frank Heinemann, 2013. "The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk," Staff Working Papers 13-31, Bank of Canada.
    7. Heinisch, Katja & Lindner, Axel, 2021. "Economic sentiment: Disentangling private information from public knowledge," IWH Discussion Papers 15/2021, Halle Institute for Economic Research (IWH).
    8. Philipp König & Kartik Anand & Frank Heinemann, 2013. "The ‘Celtic Crisis’: Guarantees, transparency, and systemic liquidity risk," SFB 649 Discussion Papers SFB649DP2013-025, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    9. Lindner, Axel, 2006. "Original Sin - Analysing Its Mechanics and a proposed Remedy in a Simple Macroeconomic Model," IWH Discussion Papers 11/2006, Halle Institute for Economic Research (IWH).
    10. Hiroki Arato & Tomoya Nakamura, 2013. "Endogenous Alleviation of Overreaction Problem by Aggregate Information Announcement," The Japanese Economic Review, Japanese Economic Association, vol. 64(3), pages 319-336, September.
    11. Shirley J. Ho, 2017. "Credibility of voluntary disclosure in financial firms," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(1-2), pages 232-247, April.
    12. van der Cruijsen, C.A.B., 2008. "The economic impact of central bank transparency," Other publications TiSEM 86c1ba91-1952-45b4-adac-8, Tilburg University, School of Economics and Management.
    13. van der Cruijsen, C.A.B. & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency : A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.
    14. Lindner, Axel, 2008. "Evaluating communication strategies for public agencies: transparency, opacity, and secrecy," IWH Discussion Papers 8/2008, Halle Institute for Economic Research (IWH).

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