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Why the Publication of Socially Harmful Information May Be Socially Desirable

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Abstract

We propose a signaling model in which the central bank and firms receive information on cost-push shocks independently from each other. If the firms’ signals are rather unlikely to be informative, central banks should remain silent about their own private signals. If, however, firms are sufficiently likely to be informed, it is socially desirable for the central bank to reveal its private information. By doing so, the central bank eliminates the distortions stemming from the signaling incentives under opacity. Our model may also explain the recent trend towards more transparency in monetary policy.

Suggested Citation

  • Volker Hahn, 2009. "Why the Publication of Socially Harmful Information May Be Socially Desirable," CER-ETH Economics working paper series 09/122, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:09-122
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    References listed on IDEAS

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    More about this item

    Keywords

    signaling games; transparency; monetary policy; central banks; communication;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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