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The Costs of Increasing Transparency

Listed author(s):
  • Maria Demertzis

    ()

  • Marco Hoeberichts

    ()

In their seminal paper, Morris and Shin (Amer Econ Rev 92(5): 1521–1534, 2002a ) argued that increasing the precision of public information is not always beneficial to social welfare. Svensson (Amer Econ Rev 96: 448–451, 2006 ) however has disputed this by saying that although feasible, the conditions for which this was true, were not all that likely. In that respect, therefore, increasing ‘transparency’ remains most of the times beneficial to social welfare. In this paper, we extend the Morris and Shin attempt by setting it up as an explicit interactive game between the Central Bank, the objectives of which we model explicitly, and the private sector. We show that in the absence of costs, both players benefit from transparency in the manner described previously in the literature, and point the differences in their gains. Following that, we then introduce the fact that increasing transparency comes at some costs and show how both players face incentives to free ride on each other as a result. The presence of costs thus alters the way in which greater transparency is attained. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11079-007-9037-5
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 18 (2007)
Issue (Month): 3 (July)
Pages: 263-280

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Handle: RePEc:kap:openec:v:18:y:2007:i:3:p:263-280
DOI: 10.1007/s11079-007-9037-5
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Order Information: Web: http://www.springer.com/economics/international+economics/journal/11079/PS2

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  1. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
  2. Jeffery D. Amato & Hyun Song Shin, 2004. "Public and Private Information in Monetary Policy Models," DNB Staff Reports (discontinued) 117, Netherlands Central Bank.
  3. Geore-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," Levine's Bibliography 122247000000000289, UCLA Department of Economics.
  4. Orphanides, Athanasios & Williams, John C., 2004. "The decline of activist stabilization policy: Natural rate misperceptions, learning, and expectations," CFS Working Paper Series 2004/24, Center for Financial Studies (CFS).
  5. Antonio Fatas & Ilian Mihov & Andrew K. Rose, 2004. "Quantitative Goals for Monetary Policy," NBER Working Papers 10846, National Bureau of Economic Research, Inc.
  6. Maria Demertzis & Nicola Viegi, 2004. "Inflation Targets as Focal Points," DNB Working Papers 017, Netherlands Central Bank, Research Department.
  7. Jeffery D. Amato & Stephen Morris & Hyun Song Shin, 2002. "Communication and Monetary Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 18(4), pages 495-503.
  8. Michael Woodford, 2001. "Imperfect Common Knowledge and the Effects of Monetary Policy," NBER Working Papers 8673, National Bureau of Economic Research, Inc.
  9. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, David K. Levine.
  10. 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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