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Central Bank Transparency and the Signal Value of Prices

Author

Listed:
  • Stephen Morris

    (Princeton University)

  • Hyun Song Shin

    (Princeton University)

Abstract

The effectiveness of monetary policy hinges on the central bank's ability to influence market expectations. Central bank transparency is a means toward this end. However, the more effective the central bank is at influencing the market's expectations, the greater is the potential for market outcomes to reflect the central bank's own assessment of the economy. The role of market prices in aggregating the information held by dispersed individual economic agents may thereby be impaired. This paper explores trade-offs involved in central bank transparency and relates them to the debates concerning the overweighting of public information in market decisions and the welfare consequences of greater provision of public information.

Suggested Citation

  • Stephen Morris & Hyun Song Shin, 2005. "Central Bank Transparency and the Signal Value of Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 1-66.
  • Handle: RePEc:bin:bpeajo:v:36:y:2005:i:2005-2:p:1-66
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    File URL: https://www.brookings.edu/wp-content/uploads/2005/06/2005b_bpea_morris.pdf
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    References listed on IDEAS

    as
    1. Levin, Andrew T. & Piger, Jeremy M. & Natalucci, Fabio M., 2004. "Explicit inflation objectives and macroeconomic outcomes," Working Paper Series 383, European Central Bank.
    2. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
    3. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-678, May.
    4. V. Vance Roley & Carl E. Walsh, 1985. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 1011-1039.
    5. Peter Tulip, 2005. "Has output become more predictable? changes in Greenbook forecast accuracy," Finance and Economics Discussion Series 2005-31, Board of Governors of the Federal Reserve System (U.S.).
    6. Scott Schuh, 2001. "An evaluation of recent macroeconomic forecast errors," New England Economic Review, Federal Reserve Bank of Boston, pages 35-56.
    7. Sean D. Campbell, 2004. "Macroeconomic volatility, predictability and uncertainty in the Great Moderation: evidence from the survey of professional forecasters," Finance and Economics Discussion Series 2004-52, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    macroeconomics; Central Bank Transparency; Signal Value; Prices;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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