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Imperfect Central Bank Communication - Information versus Distraction

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Author Info

  • Athanasios Orphanides
  • Spencer Dale
  • Pär Österholm

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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Bibliographic Info

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

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Length: 26
Date of creation: 01 Mar 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/60

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Keywords: Transparency;

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References

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  1. Frederic S Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
  2. Athanasios Orphanides & John C. Williams, 2003. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Working Papers 9884, National Bureau of Economic Research, Inc.
  3. Sibert, Anne, 2006. "Is Central Bank Transparency Desirable?," CEPR Discussion Papers 5641, C.E.P.R. Discussion Papers.
  4. Michael Woodford, 2005. "Central Bank Communication and Policy Effectiveness," NBER Working Papers 11898, National Bureau of Economic Research, Inc.
  5. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  6. Bernhard Winkler, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 26, European Central Bank.
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Cited by:
  1. Eijffinger, Sylvester C W & Hoogduin, Lex & van der Cruijsen, Carin A B, 2008. "Optimal Central Bank Transparency," CEPR Discussion Papers 6889, C.E.P.R. Discussion Papers.
  2. Svensson, Lars E O, 2009. "Transparency under Flexible Inflation Targeting: Experiences and Challenges," CEPR Discussion Papers 7213, C.E.P.R. Discussion Papers.
  3. Takeshi Kimura & Kosuke Aoki, 2009. "Central Bank's Two-Way Communication with the Public and Inflation Dynamics," 2009 Meeting Papers 108, Society for Economic Dynamics.
  4. Martin Cihák & Katerina Smídková & Ales Bulir, 2008. "Writing Clearly: ECB's Monetary Policy Communication," IMF Working Papers 08/252, International Monetary Fund.
  5. Beechey, Meredith & Österholm, Pär, 2012. "Policy Interest-Rate Expectations in Sweden: A Forecast Evaluation," Working Paper 127, National Institute of Economic Research.

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