Learning-by-Sharing: Monetary Policy and the Information Content of Public Signals

This paper studies the effect of a central bank releasing public information about the state of the economy in a dispersed information business cycle model in which market participants learn from the distribution of prices, economy-wide output and the level of the interest rate. It demonstrates how central bank information disclosure can increase the information content of public signals by making expectations of future central bank actions closer to common knowledge. This effect is shown in a calibrated business cycle model to completely offset the standard learning externality of additional public information. Central bank information disclosure can thus decrease the level of uncertainty about the state of the economy for everyone -- even the central bank itself. This qualifies the "anti-disclosure" result in Morris and Shin (2005) and Amador and Weill (2010).