Central bank transparency, exchange rates, and demand imbalances

Giacomo Candian

Journal of Monetary Economics, 2021, vol. 119, issue C, 90-107

Abstract: Do the benefits of central bank transparency depend on the structure of financial markets? We address this question in a two-country model with dispersed information among price-setting firms. The volatility of the real exchange rate is non-monotonic in the precision of public communications. Despite this non-monotonicity, under complete markets, greater provision of public information always improves welfare and full transparency is optimal. By contrast, under incomplete markets, more accurate public signals can decrease welfare by exacerbating the cost of cross-country demand imbalances. If the trade elasticity is low, optimal public announcements are intentionally imprecise.

Keywords: Central bank transparency; Information frictions; Real exchange rates; Demand imbalances (search for similar items in EconPapers)
JEL-codes: D83 E5 F41 F42 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:119:y:2021:i:c:p:90-107

DOI: 10.1016/j.jmoneco.2021.03.001

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