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The Costs of Increasing Transparency

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Author Info
Maria Demertzis
Marco Hoeberichts

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Abstract

In their seminal paper, Morris and Shin (2002a) argued that increasing the precision of public information is not always bene.cial to social welfare. Svensson (2005) however has disputed this by saying that although feasible, the conditions for which this was true, were not at all that likely. In that respect, therefore, increasing transparency remains most of the times beneficial to social welfare. In this paper, we extend the Morris and Shin attempt, by setting it up as an explicit interactive game between the Central Bank, the objectives of which we model explicitly, and the private sector. We show that in the absence of costs, both players benefit from transparency, in the manner described previously in the literature, and point the di¤erences in their gains. Following that, we then introduce the fact that increasing transparency comes at some costs, and show how both players face incentives to free ride on each other as a result. The presence of costs, thus alters the way in which greater transparency is attained.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 080.

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Date of creation: Jan 2006
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Handle: RePEc:dnb:dnbwpp:080

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Related research
Keywords: Public and Private Signals; High Order Expectations; Monetary Policy.;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fatás, Antonio & Mihov, Ilian & Rose, Andrew K, 2004. "Quantitative Goals for Monetary Policy," CEPR Discussion Papers 4445, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Maria Demertzis & Nicola Viegi, 2004. "Inflation Targets as Focal Points," DNB Working Papers 017, Netherlands Central Bank, Research Department. [Downloadable!]
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  3. Jeffrey D. Amado & Stephen Morris & Hyun Song Shin, 2003. "Communication and Monetary Policy," Cowles Foundation Discussion Papers 1405, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  4. Jeffery Amato & Hyun Song Shin, 2003. "Public and Private Information in Monetary Policy Models," Levine's Bibliography 666156000000000092, UCLA Department of Economics. [Downloadable!]
  5. Geore-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," Levine's Bibliography 122247000000000289, UCLA Department of Economics. [Downloadable!]
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  6. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, David K. Levine. [Downloadable!]
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  7. John C. Williams & Athanasios Orphanides, 2004. "The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning, and Expectations," Computing in Economics and Finance 2004 144, Society for Computational Economics. [Downloadable!]
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  8. Hyun Song Shin & Jeffery D. Amato, 2003. "Public and private information in monetary policy models," BIS Working Papers 138, Bank for International Settlements. [Downloadable!]
  9. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December. [Downloadable!]
  10. Michael Woodford, 2001. "Imperfect Common Knowledge and the Effects of Monetary Policy," NBER Working Papers 8673, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Hyun Song Shin & Jeffery D. Amato, 2003. "Public and Private Information in Monetary Policy Models," Computing in Economics and Finance 2003 38, Society for Computational Economics. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Menno Middeldorp & Clemens Kool & Stephanie Rosenkranz, 2007. "Listening Without Understanding," Working Papers 07-19, Utrecht School of Economics. [Downloadable!]
  2. Demertzis, Maria & Hughes Hallett, Andrew, 2005. "Forming Rational Expectations and When it is Right to be 'Wrong'," CEPR Discussion Papers 5042, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Maria Demertzis, 2006. "The role of expectations in monetary policy," DNB Working Papers 118, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  4. Carin A.B. van der Cruijsen & Sylvester C.W. Eijffinger & Lex H. Hoogduin, 2008. "Optimal Central Bank Transparency," DNB Working Papers 178, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
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