How Much Information should Interest Rate-Setting Central Banks Reveal?

Pierre Gosselin (pierre.gosselin@univ-grenoble-alpes.fr), Aïleen Lotz and Charles Wyplosz

No 08-2006, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: Morris and Shin (2002) have shown that a central bank may be too transparent if the private sector pays too much attention to its possible imprecise signals simply because they are common knowledge. In their model, the central bank faces a binary choice: to reveal or not to reveal its information. This paper extends their model to the more realistic case where the central bank must anyway convey some information by setting the interest rate. This situation radically changes the conclusions. In many cases, full transparency is socially optimal. In other instances the central bank can distill information to either manipulate private sector expectations in a way that reduces the common knowledge effect or to reduce the unavoidable information content of the interest rate. In no circumstance is the option of only setting the interest rate socially optimal.

Keywords: Central; Bank; Transparency (search for similar items in EconPapers)
Pages: 38
Date: 2006-04-10
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP08-2006.pdf (application/pdf)

Related works:
Working Paper: How Much Information Should Interest Rate-Setting Central Banks Reveal? (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heiwp08-2006

Access Statistics for this paper

More papers in IHEID Working Papers from Economics Section, The Graduate Institute of International Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dorina Dobre (departments-web@graduateinstitute.ch).