Central Bank's Action and Communication
This paper contributes to the ongoing debate about the welfare effect of public information. In an environment characterized by imperfect common knowledge and strategic complementarities, Morris and Shin (2002)argue that noisy public information may be detrimental to welfare because public information is attributed too large a weight relative to its face value since it serves as a focal point. While this argument has received a great deal of attention in central banks and in the financial press, it considers communication as the sole task of a central bank and ignores that communication usually goes with a policy action. This paper accounts for the action task of a central bank and analyzes whether public disclosure is beneficial in the conduct of monetary policy when the central bank primarily tries to stabilize the economy with an instrument that is optimal with respect to its perhaps mistaken view. In this context, it turns out that transparency is particularly beneficial when central bankâ€™s information is poorly accurate because it helps reducing the distortion associated with badly suited policies.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.vwl.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christian Hellwig, 2004. "Heterogeneous Information and the Benefits of Public Information Disclosures (October 2005)," UCLA Economics Online Papers 283, UCLA Department of Economics.
- Adam, Klaus, 2007.
"Optimal monetary policy with imperfect common knowledge,"
Journal of Monetary Economics,
Elsevier, vol. 54(2), pages 267-301, March.
- Adam, Klaus, 2003. "Optimal Monetary Policy with Imperfect Common Knowledge," CFS Working Paper Series 2003/12, Center for Financial Studies (CFS).
- Klaus Adam, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," Econometric Society 2004 North American Winter Meetings 24, Econometric Society.
- Klaus Adam, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," DNB Staff Reports (discontinued) 116, Netherlands Central Bank.
- Klaus Adam, 2003. "Optimal Monetary Policy with Imperfect Common Knowledge," Computing in Economics and Finance 2003 263, Society for Computational Economics.
- Adam, Klaus, 2003. "Optimal monetary policy with imperfect common knowledge," Working Paper Series 0223, European Central Bank.
- Adam, Klaus, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," CEPR Discussion Papers 4594, C.E.P.R. Discussion Papers.
- Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
- Camille Cornand & Frank Heinemann, 2004.
"Optimal Degree of Public Information Dissemination,"
CESifo Working Paper Series
1353, CESifo Group Munich.
- Camille Cornand & Frank Heinemann, 2008. "Optimal Degree of Public Information Dissemination," Economic Journal, Royal Economic Society, vol. 118(528), pages 718-742, 04.
- Cornand, Camille & Heinemann, Frank, 2006. "Optimal Degree of Public Information Dissemination," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 158, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Stephen Morris & Hyun Song Shin, 2007.
Journal of the European Economic Association,
MIT Press, vol. 5(2-3), pages 594-602, 04-05.
- Péter Kondor, 2005.
"The more we know, the less we agree: public announcements and higher-order expectations,"
FMG Discussion Papers
dp532, Financial Markets Group.
- Peter Kondor, 2004. "The more we know, the less we agree: public announcements and higher-order expectations," LSE Research Online Documents on Economics 24645, London School of Economics and Political Science, LSE Library.
- David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
- Heinemann, Frank & Illing, Gerhard, 2002.
"Speculative attacks: unique equilibrium and transparency,"
Journal of International Economics,
Elsevier, vol. 58(2), pages 429-450, December.
- Heinemann, Frank & Illing, Gerhard, 2002. "Speculative attacks: Unique equilibrium and transparency," Munich Reprints in Economics 19430, University of Munich, Department of Economics.
- Stephen Morris & Hyun Song Shin, 2005. "Central Bank Transparency and the Signal Value of Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 1-66.
- Michael Woodford, 2005.
"Central Bank Communication and Policy Effectiveness,"
NBER Working Papers
11898, National Bureau of Economic Research, Inc.
- Michael Woodford, 2005. "Central bank communication and policy effectiveness," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 399-474.
When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:1381. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.