Why the Publication of Socially Harmful Information May Be Socially Desirable

Volker Hahn

No 09/122, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We propose a signaling model in which the central bank and firms receive information on cost-push shocks independently from each other. If the firms’ signals are rather unlikely to be informative, central banks should remain silent about their own private signals. If, however, firms are sufficiently likely to be informed, it is socially desirable for the central bank to reveal its private information. By doing so, the central bank eliminates the distortions stemming from the signaling incentives under opacity. Our model may also explain the recent trend towards more transparency in monetary policy.

Keywords: signaling games; transparency; monetary policy; central banks; communication (search for similar items in EconPapers)
JEL-codes: D82 D83 E58 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2009-11
New Economics Papers: this item is included in nep-cba, nep-cta, nep-mac and nep-mon
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