Central bank communication and crowding out of private information in an experimental asset market
Theoretical results from previous work, presented in Kool, Middeldorp and Rosenkranz (2007), suggest that central bank communication crowds out private information acquisition and that this effect can lead to a deterioration of the ability of financial markets to predict future policy interest rates. We examine this result in an experimental asset market that closely follows the theoretical model. Crowding out of information acquisition takes place and, where this crowding out is most rapid, there is deterioration of the marketâ€™s predictive ability. This supports the theoretical result that central bank communication can actually make it more difficult for financial markets to predict future policy rates.
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"Central Bank communication and monetary policy: a survey of theory and evidence,"
Working Paper Series
0898, European Central Bank.
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- Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob de Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," DNB Working Papers 170, Netherlands Central Bank, Research Department.
- Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Working Papers 1038, Princeton University, Department of Economics, Center for Economic Policy Studies..
- C.J.M. Kool & S. Rosenkranz & M. Middeldorp, 2007. "Listening Without Understanding : Central Bank Transparency, Financial Markets and the Crowding Out of Private Information," Working Papers 07-19, Utrecht School of Economics.
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- 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.
- repec:use:tkiwps:2525 is not listed on IDEAS
- Diamond, Douglas W, 1985. " Optimal Release of Information by Firms," Journal of Finance, American Finance Association, vol. 40(4), pages 1071-1094, September.
- M. Middeldorp & S. Rosenkranz, 2008. "Information acquisition in an experimental asset market," Working Papers 08-25, Utrecht School of Economics.
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