Central bank's stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing

Cornand, Camille; Dos Santos Ferreira, Rodolphe

Central bank's stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing

Camille Cornand and Rodolphe Dos Santos Ferreira

Abstract: Using a simple microfounded macroeconomic model with price making firms and a central bank maximizing the welfare of a representative household, it is shown that the presence of firms' motivated beliefs has stark consequences for the conduct of optimal communication and stabilization policies. Under pure communication (resp. communication and stabilization policies), motivated beliefs about own private information (resp. own ability to process information) reverse the bang-bang solution of transparency (resp. opacity with full stabilization) found in the literature under objective beliefs and lead to intermediate levels of communication (and stabilization).

Keywords: Motivated beliefs; Public and private information (accuracy); Overconfidence; Communication policy; Stabilization policy (search for similar items in EconPapers)
Date: 2021-12-07
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
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