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Central Bank Communication with a Financial Stability Objective

David Arseneau

No 2020-087, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: An endogenous financial crisis is introduced into the canonical model used to study central bank transparency. The central bank is endowed with private information about the real economy and credit conditions which jointly determine financial vulnerabilities. An optimal choice is made regarding whether to communicate this information to the public. A key finding is that the optimal communication strategy depends on the state of the credit cycle and the \ composition of shocks driving the cycle. From a policy perspective, this raises the possibility that central bank communication in the presence of a financial stability objective faces a time inconsistency problem.

Keywords: Financial stability report; Information disclosure; Survey of economic projections; Time inconsistency problem; Transparency (search for similar items in EconPapers)
JEL-codes: E58 E61 G18 (search for similar items in EconPapers)
Pages: 38 p.
Date: 2020-10-13
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-87

DOI: 10.17016/FEDS.2020.087

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