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Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?

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  • Lindner, Axel

Abstract

A recent strand of literature (see Morris and Shin 2001) shows that multiple equilibria in models of markets for pegged currencies vanish if there is slightly diverse information between traders. It is known that this approach works only if there is not too precise common knowledge in the market. This has led to the conclusion that central banks should try to avoid making their information common knowledge. We present a model in which more transparency of the central bank means better private information, because each trader utilizes public information according to her own private information. Thus, transparency makes multiple equilibria less likely.

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  • Lindner, Axel, 2003. "Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?," IWH Discussion Papers 178/2003, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-178
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    Cited by:

    1. Jean-Pierre Allegret & Camille Cornand, 2006. "The pros and cons of higher transparency: the case of speculative attacks," Recherches économiques de Louvain, De Boeck Université, vol. 72(3), pages 215-246.

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