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Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?

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  • Axel Lindner

Abstract

A 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 Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 178.

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Date of creation: Aug 2003
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Handle: RePEc:iwh:dispap:178

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Cited by:
  1. Axel Lindner, 2007. "Does too much Transparency of Central Banks Prevent Agents from Using their Private Information Efficiently?," IWH Discussion Papers 16, Halle Institute for Economic Research.
  2. Axel Lindner, 2008. "Evaluating communication strategies for public agencies: transparency, opacity, and secrecy," IWH Discussion Papers 8, Halle Institute for Economic Research.
  3. Frank Heinemann & Camille Cornand, 2006. "Speculative Attacks with Multiple Sources of Public Information," FMG Discussion Papers dp570, Financial Markets Group.
  4. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers 6070, C.E.P.R. Discussion Papers.
  5. Philipp König & Kartik Anand & Frank Heinemann, 2013. "The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk," Working Papers 13-31, Bank of Canada.
  6. Axel Lindner, 2006. "Original Sin - Analysing Its Mechanics and a proposed Remedy in a Simple Macroeconomic Model," IWH Discussion Papers 11, Halle Institute for Economic Research.

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