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Vagueness, credibility, and government policy

  • Joseph G. Haubrich

A discussion of the reasons why it may be in a government agency's--and society's--best interest to be vague about policy objectives. Using the concept of "cheap talk," the author explains that when an agency faces a trade-off between precise and credible announcements, its best move may be to provide truthful but limited information.

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File URL: http://www.clevelandfed.org/Research/Review/1995/95-q1-haubrich.pdf
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Article provided by Federal Reserve Bank of Cleveland in its journal Economic Review.

Volume (Year): (1995)
Issue (Month): Q I ()
Pages: 13-19

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Handle: RePEc:fip:fedcer:y:1995:i:qi:p:13-19
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  1. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  2. Marvin Goodfriend, 1985. "Monetary mystique : secrecy and central banking," Working Paper 85-07, Federal Reserve Bank of Richmond.
  3. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
  4. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
  5. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  6. Kenneth Spong, 2000. "Banking regulation : its purposes, implementation, and effects," Monograph, Federal Reserve Bank of Kansas City, number 2000bria.
  7. Matthews, Steven A. & Okuno-Fujiwara, Masahiro & Postlewaite, Andrew, 1991. "Refining cheap-talk equilibria," Journal of Economic Theory, Elsevier, vol. 55(2), pages 247-273, December.
  8. Kane, Edward J., 1980. "Politics and Fed policymaking : The more things change the more they remain the same," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 199-211, April.
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