The Return of Greenspan: Mumbling with Great Incoherence

Shengliang Ou, Donghai Zhang and Renbin Zhang

Journal of the European Economic Association, 2025, vol. 23, issue 6, 2048-2091

Abstract: This study demonstrates that more information about the unobserved state of the economy may reduce social welfare owing to the presence of nominal rigidity. On one hand, costly business cycle fluctuations and price dispersions arising from nominal rigidity are muted in a noisy economy. On the other hand, an economy with less information suffers from efficiency losses due to inefficient coordination in pricing decisions. Monetary policy affects the tradeoff, and thus interacts with the social value of information. We characterize the conditions under which more information reduces social welfare. Our findings are relevant for optimal central bank communication strategies and for evaluating the social benefit of new technologies, such as AI technology, that reduce the cost of information acquisition.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:23:y:2025:i:6:p:2048-2091.

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