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Imperfect Central Bank Communication - Information versus Distraction

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Author Info
Pär Österholm
Spencer Dale
Athanasios Orphanides

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Abstract

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. There is a risk that the central bank can distract the public; this means that the central bank may prefer to focus its communication policies on the information it knows most about. Indeed, conveying more certain information may improve the public's understanding to the extent that it "crowds out" a role for communicating imperfect information.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/60.

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Length: 31 pages
Date of creation: 18 Mar 2008
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Handle: RePEc:imf:imfwpa:08/60

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Related research
Keywords: Central banks Transparency

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. Michael Woodford, 2005. "Central-bank communication and policy effectiveness," Discussion Papers 0506-07, Columbia University, Department of Economics. [Downloadable!]
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  2. Sibert, Anne, 2006. "Is Central Bank Transparency Desirable?," CEPR Discussion Papers 5641, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Frederic S. Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," NBER Working Papers 10829, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. 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!] (restricted)
  5. Bernhard Winkler, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 26, European Central Bank. [Downloadable!]
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