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Does too much Transparency of Central Banks Prevent Agents from Using their Private Information Efficiently?

  • Axel Lindner

This paper analyses in a simple global games framework welfare effects of different communication strategies of a central bank: it can either publish no more than its overall assessment of the economy or be more transparent, giving detailed reasons for this assessment. The latter strategy is shown to be superior because it enables agents to use private information and to be less dependent on common knowledge. This result holds true even if the strategies of agents are strategic complements, for which case it has been argued that too much transparency might induce agents to neglect their private knowledge.

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File URL: http://www.iwh-halle.de/d/publik/disc/16-07.pdf
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Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 16.

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Date of creation: Dec 2007
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Handle: RePEc:iwh:dispap:16-07
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  1. Axel Lindner, 2003. "Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?," IWH Discussion Papers 178, Halle Institute for Economic Research.
  2. 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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