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Monetary policy and its informative value

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  • Romain Baeriswyl
  • Camille Cornand

Abstract

This paper analyzes the welfare effects of economic transparency in a model of monopolistic competition with imperfect common knowledge on the shocks affecting the economy where the central bank has no inflationary bias. Monetary policy entails a dual role, as an action that stabilizes the economy and as a public signal that partially reveals to firms the central bank?s assessment about the economy. Firms are unable to perfectly disentangle the central bank?s signals responsible for the instrument: the central bank optimally balances the action and information purposes of its instrument. We derive the optimal monetary policy and central bank?s disclosure.

Suggested Citation

  • Romain Baeriswyl & Camille Cornand, 2007. "Monetary policy and its informative value," Proceedings, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfpr:y:2007:x:4
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    8. Baeriswyl, Romain, 2007. "Central Bank's Action and Communication," Discussion Papers in Economics 1381, University of Munich, Department of Economics.
    9. Palle S Andersen & William L Wascher, 2001. "Understanding the recent behaviour of inflation: an empirical study of wage and price developments in eight countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 267-302, Bank for International Settlements.
    10. Alex Cukierman, 2002. "Are contemporary central banks transparent about economic models and objectives and what difference does it make?," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 15-36.
    11. Baeriswyl, Romain & Cornand, Camille, 2007. "Can Opacity of a Credible Central Bank Explain Excessive Inflation?," Discussion Papers in Economics 1376, University of Munich, Department of Economics.
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    Cited by:

    1. George-Marios Angeletos & Alessandro Pavan, 2009. "Policy with Dispersed Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 11-60, March.
    2. George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2023. "Wall Street and Silicon Valley: A Delicate Interaction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1041-1083.
    3. Myatt, David P. & Wallace, Chris, 2014. "Central bank communication design in a Lucas-Phelps economy," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 64-79.
    4. Carl Walsh, 2007. "Inflation Targeting and the Role of Real Objectives," Research and Policy Notes 2007/02, Czech National Bank, Research and Statistics Department.
    5. Myatt, David P. & Wallace, Chris, 2015. "Cournot competition and the social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 466-506.

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