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On the social cost of transparency in monetary economies

  • David Andolfatto

I study a class of models commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to exogenous news events, but whose expected long-run return is independent of this information. I show that there are circumstances in which the nondisclosure of news by an asset manager is welfare-improving. When nondisclosure is infeasible, the framework admits a role for government debt. The theory is used to interpret the nondisclosure practices of reputable financial agencies and suggests caveats for legislation designed to promote financial market transparency.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2010-001.

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Date of creation: 2010
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Handle: RePEc:fip:fedlwp:2010-001
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