Dale, Spencer (Board of Governors of the Federal Reserve System) Orphanides, Athanasios () (Central Bank of Cyprus) Österholm, Pär () (Department of Economics)
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Much of the information communicated by central banks is noisy or imperfect. This paper considers the potential benefits and limitations of central bank communications in a model of imperfect knowledge and learning. It is shown that the value of communicating imperfect information is ambiguous. If the public is able to assess accurately the quality of the imperfect information communicated by a central bank, such communication can inform and improve the public`s decisions and expectations. But if not, communi-cating imperfect communication has the potential to mislead and distract. The risk that imperfect communication may detract from the publics understanding should be considered in the context of a central banks communications strategy. The risk of distraction means the central bank may prefer to focus its communi-cation policies on the information it knows most about. Indeed, conveying more certain information may improve the public`s under-standing to the extent that it "crowds out" a role for communicating imperfect information.
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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number
2008:3.
Length: 33 pages Date of creation: 25 Feb 2008 Date of revision: Handle: RePEc:hhs:uunewp:2008_003
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Find related papers by JEL classification: 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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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.
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