When and how much to talk: credibility and flexibility in monetary policy with private information
AbstractThis paper analyzes how noisy or imprecise announcements might partially remove the inefficiencies resulting from the credibility problem in monetary policy when the presence of non-verifiable private information adds another dimension to that problem. The analysis finds that imprecise or noisy announcements can be a meaningful form of communication only if it is possible to "tie" the hands of the monetary authority somehow. To the extent that it is otherwise efficient for policy to react to the monetary authority?s private information, such announcements can be extremely costly in terms of the sacrifice in flexibility required to make them relevant. Suprisingly, the conditions under which the monetary authority can make more precise announcements are identical to those under which the monetary authority is less likely to prefer the noisy announcement equilibrium.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1990-004.
Date of creation: 1990
Date of revision:
Other versions of this item:
- Garfinkel, Michelle R. & Oh, Seonghwan, 1995. "When and how much to talk credibility and flexibility in monetary policy with private information," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 341-357, April.
- Michelle R. Garfinkel & Seonghwan Oh, 1990. "When and How Much to Talk: Credibility and Flexibility in Monetary Policy With Private Information," UCLA Economics Working Papers 593, UCLA Department of Economics.
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