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On the Social Cost of Transparency in Monetary Economies

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  • Federal Reserve Bank of St. Louis
  • David Andolfatto

Abstract

I study a class of models commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to exogenous news events, but whose expected long-run return is independent of this information. I show that there are circumstances in which the nondisclosure of news by an asset manager is welfare-improving. When nondisclosure is infeasible, the framework admits a role for government debt. The theory is used to interpret the nondisclosure practices of reputable financial agencies and suggests caveats for legislation designed to promote financial market transparency.
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Suggested Citation

  • Federal Reserve Bank of St. Louis & David Andolfatto, 2010. "On the Social Cost of Transparency in Monetary Economies," 2010 Meeting Papers 980, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:980
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    Cited by:

    1. Gary Gorton & Guillermo Ordo?ez, 2014. "Collateral Crises," American Economic Review, American Economic Association, vol. 104(2), pages 343-378, February.
    2. Anderson, Haelim & Copeland, Adam, 2023. "Information management in times of crisis," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 35-49.
    3. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96, Elsevier.
    4. Tri Vi Dang & Gary Gorton & Bengt Holmström & Guillermo Ordoñez, 2017. "Banks as Secret Keepers," American Economic Review, American Economic Association, vol. 107(4), pages 1005-1029, April.
    5. Marco Bassetto & David S. Miller, 2022. "A Monetary-Fiscal Theory of Sudden Inflations," Staff Report 641, Federal Reserve Bank of Minneapolis.
    6. A. Mantovi, 2019. "Information insensitivity, collateral flows and the logic of financial stability," Economics Department Working Papers 2019-EP01, Department of Economics, Parma University (Italy).
    7. Wang, Zijian, 2019. "Trading Motives in Asset Markets," MPRA Paper 91401, University Library of Munich, Germany.
    8. Andolfatto, David & Berentsen, Aleksander & Waller, Christopher, 2014. "Optimal disclosure policy and undue diligence," Journal of Economic Theory, Elsevier, vol. 149(C), pages 128-152.
    9. James B. Davies & Samantha L. Black, 2020. "Distributional Effects of Flooding, with an Application to a Major Urban Area," University of Western Ontario, Departmental Research Report Series 20201, University of Western Ontario, Department of Economics.
    10. Zijian Wang, 2019. "Trading Motives in Asset Markets," University of Western Ontario, Departmental Research Report Series 20191, University of Western Ontario, Department of Economics.

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