Heterogeneous private sector information, central bank disclosure, and stabilization policy

Jonathan G. James and Phillip Lawler

Southern Economic Journal, 2015, vol. 82, issue 2, 620-634

Abstract: Conventional wisdom has it that a central bank that uses an informational advantage to undertake active policy intervention can do as well, at least so far as real outcomes are concerned, by making its information publicly available and abstaining from stabilization. This notion is examined using a framework incorporating heterogeneous private sector information concerning aggregate demand shocks. An activist regime, in which the central bank exploits its own information to engage in stabilization, is found to be unambiguously superior to a noninterventionist regime, where the central bank maintains a constant setting of policy but publicly discloses its own information.

Date: 2015
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https://doi.org/10.1002/soej.12028

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:82:y:2015:i:2:p:620-634

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