Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?
AbstractA recent strand of literature (see Morris and Shin 2001) shows that multiple equilibria in models of markets for pegged currencies vanish if there is slightly diverse information between traders. It is known that this approach works only if there is not too precise common knowledge in the market. This has led to the conclusion that central banks should try to avoid making their information common knowledge. We present a model in which more transparency of the central bank means better private information, because each trader utilizes public information according to her own private information. Thus, transparency makes multiple equilibria less likely.
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Bibliographic InfoPaper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 178.
Date of creation: Aug 2003
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Other versions of this item:
- Axel Lindner, 2006. "Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 1-14, 03.
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- Demirel Ufuk D, 2009. "The Transmission of Foreign Interest Rate Shocks to a Small-Open Economy: The Role of External Debt and Financial Integration," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-37, February.
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