Policy Announcements and Welfare

Vadym Lepetyuk and Christian Stoltenberg
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Vadym Lepetyuk: Universidad de Alicante, Departamento de Fundamentos del Analisis Economico

No 65, NBP Working Papers from Narodowy Bank Polski

Abstract: In the presence of idiosyncratic risk, the public revelation of information about uncertain aggregate outcomes such as policy choices can be detrimental to social welfare. By announcing informative signals on non-insurable aggregate risk, the policy maker distorts agents’ insurance incentives and increases the riskiness of the optimal allocation that is feasible in self-enforceable arrangements. As an application, we consider a monetary authority that may reveal changes in the inflation target, and document that the negative effect of distorted insurance incentives can very well dominate conventional effects in favor for the release of better information.

Keywords: Social value of information; policy announcements; monetary policy; transparency (search for similar items in EconPapers)
JEL-codes: D81 D86 E21 E52 E65 (search for similar items in EconPapers)
Pages: 63
Date: 2009
New Economics Papers: this item is included in nep-cba and nep-cta
Note: The paper was presented at the National Bank of Poland’s conference “Publishing Central Bank Forecast in Theory and Practice” held on 5–6 November 2009 in Warsaw.
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Policy Announcements and Welfare (2013)
Working Paper: Policy announcements and welfare (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:65

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