Should central banks remain silent about their private information on cost-push shocks?

Volker Hahn

Oxford Economic Papers, 2012, vol. 64, issue 4, 593-615

Abstract: We propose a signalling model in which the central bank and firms receive information on cost-push shocks independently of each other. If the firms are rather unlikely to receive information directly, the central bank should remain silent about its own private information. If, however, firms are sufficiently likely to be informed, it is socially desirable for the central bank to reveal its own private information. By doing so, the central bank eliminates the distortions stemming from the signalling incentives under opacity. An ex ante transparency requirement can improve welfare even if central banks have the possibility to withhold information discretionarily. Moreover, our model may provide a rationale for the recent trend towards more transparency in monetary policy. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

Date: 2012
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