Reducing overreaction to central banks' disclosures: theory and experiment

Romain Baeriswyl and Camille Cornand
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Romain Baeriswyl: Swiss National Bank - Swiss National Bank

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Abstract: Financial markets are known for overreacting to public information. Central banks can reduce this overreaction either by disclosing information to a fraction of market participants only (partial publicity) or by disclosing information to all participants but with ambiguity (partial transparency). We show that, in theory, both communication strategies are strictly equivalent in the sense that overreaction can be indi-erently mitigated by reducing the degree of publicity or by reducing the degree of transparency. We run a laboratory experiment to test whether theoretical predictions hold in a game played by human beings. In line with theory, the experiment does not allow the formulation of a clear preference in favor of either communication strategy. This paper, however, makes a case for partial transparency rather than partial publicity because the latter seems increasingly diffcult to implement in the present information age and is associated with discrimination as well as fairness issues.

Keywords: heterogeneous information; public information; overreaction; transparency; coordination; experiment (search for similar items in EconPapers)
Date: 2012-01-09
New Economics Papers: this item is included in nep-cta, nep-exp and nep-mon
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00657943v1
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Journal Article: REDUCING OVERREACTION TO CENTRAL BANKS' DISCLOSURES: THEORY AND EXPERIMENT (2014)
Working Paper: Reducing overreaction to central banks disclosure: theory and experiment (2014)
Working Paper: Reducing overreaction to central banks' disclosures: theory and experiment (2013)
Working Paper: Reducing overreaction to central banks' disclosures: theory and experiment (2012)
Working Paper: Reducing overreaction to central banks' disclosures: theory and experiment (2012)
Working Paper: Reducing overreaction to central banks' disclosures: theory and experiment (2012)
Working Paper: Reducing overreaction to central banks' disclosures: theory and experiment (2012)
Working Paper: Reducing overreaction to central banks' disclosures:theory and experiment (2012)
Working Paper: Reducing overreaction to central banks’ disclosures: theory and experiment (2011)
Working Paper: Reducing overreaction to central banks' disclosures: theory and experiment (2011)
Working Paper: Reducing overreaction to central banks' disclosures: theory and experiment (2011)
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