Central bank’s stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing

Camille Cornand and Rodolphe Dos Santos Ferreira

No 2118, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: Using a simple microfounded macroeconomic model with price making firms and a central bank maximizing the welfare of a representative household, it is shown that the presence of firms’ motivated beliefs has stark consequences for the conduct of optimal communication and stabilization policies. Under pure communication (resp. communication and stabilization policies), motivated beliefs about own private information (resp. own ability to process information) reverse the bang-bang solution of transparency (resp. opacity with full stabilization) found in the literature under objective beliefs and lead to intermediate levels of communication (and stabilization).

Keywords: Motivated beliefs; public and private information (accuracy); overconfidence; communication policy; stabilization policy (search for similar items in EconPapers)
JEL-codes: D83 D84 E52 E58 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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ftp://ftp.gate.cnrs.fr/RePEc/2021/2118.pdf (application/pdf)

Related works:
Working Paper: Central bank’s stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing (2022)
Working Paper: Central bank's stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing (2021)
Working Paper: Central bank's stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing (2021)
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