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Endogenous Central Bank Information and the Optimal Degree of Transparency

Author

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  • Romain Baeriswyl

    (Munich Graduate School of Economics and Swiss National Bank)

Abstract

As a policymaker, the central bank both observes and shapes the economy. The central bank scrutinizes market activity to assess the state of the economy, and its policy strongly shapes market outcomes. When transparency allows the central bank to shape the economy more effectively, it may also cause the informational role of the economic aggregate to deteriorate. This paper presents a simple model to capture the endogenous nature of central bank information and to address welfare issues. First, accounting for the endogeneity of information highlights the detrimental effects of transparency. A model with endogenous information always calls for a lower degree of transparency than a model with exogenous information. Second, the optimal degree of transparency for endogenous information is unrelated to the accuracy of firms’ private information.

Suggested Citation

  • Romain Baeriswyl, 2011. "Endogenous Central Bank Information and the Optimal Degree of Transparency," International Journal of Central Banking, International Journal of Central Banking, vol. 7(2), pages 85-111, June.
    • Handle: RePEc:ijc:ijcjou:y:2011:q:2:a:3
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    References listed on IDEAS

    as
    1. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
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    Cited by:

    1. Romain Baeriswyl & Camille Cornand & Bruno Ziliotto, 2020. "Observing and Shaping the Market: The Dilemma of Central Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(8), pages 1973-2005, December.
    2. Romain Baeriswyl & Camille Cornand, 2014. "Reducing Overreaction To Central Banks' Disclosures: Theory And Experiment," Journal of the European Economic Association, European Economic Association, vol. 12(4), pages 1087-1126, August.
    3. Jonathan G. James & Philip Lawler, 2024. "Clarity of Central Bank Communication and the Social Value of Public Information," Working Papers 2024-03, Swansea University, School of Management.
    4. Roman Horvath & Dominika Katuscakova, 2016. "Transparency and trust: the case of the European Central Bank," Applied Economics, Taylor & Francis Journals, vol. 48(57), pages 5625-5638, December.
    5. Arato, Hiroki & Hori, Takeo & Nakamura, Tomoya, 2021. "Endogenous information acquisition and the partial announcement policy," Information Economics and Policy, Elsevier, vol. 55(C).
    6. Juan David Prada-Sarmiento, 2011. "Multiple policymakers and the social value of public information," Borradores de Economia 8981, Banco de la Republica.
    7. Jalali-Naini, Ahmad-Reza & Naderian, Mohammad-Amin, 2014. "Social Value of Information and Optimal Communication Policy of Central Banks," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 9(3), pages 31-57, April.
    8. Gaetano Gaballo, 2016. "Rational Inattention to News: The Perils of Forward Guidance," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 42-97, January.
    9. 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.
    10. 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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    More about this item

    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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