Transparency versus Tone: Public Communication with Limited Commitment

Snehal Banerjee

University of California, San Diego (UCSD) - Rady School of Management

Qingmin Liu

Columbia University

June 2014

Communication of public information is an integral aspect of policy-making by central banks and governments. We study public communication by a policymaker who cannot fully commit to a disclosure policy. The policymaker chooses not only the transparency of its communication (i.e., the precision of the public signal), but also its tone (i.e., the mean of the signal). Without commitment, the policymaker faces a trade-off between being informative and being manipulative. We show that an informative equilibrium exists if and only if the policymaker’s incentives are perfectly aligned with those of the individuals. When there is a conflict of interest, the optimal communication is always completely uninformative. This is not because the public signal is imprecise, but because the policymaker’s tone is overly optimistic or pessimistic --- in equilibrium, the policymaker babbles precisely. We also show that tone is crucial to the effectiveness of policy interventions in the absence of commitment.

Number of Pages in PDF File: 27

Keywords: Central bank transparency, commitment, communication, disclosure policy, coordination, policy intervention

JEL Classification: D83, E58, E61

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Date posted: January 23, 2014 ; Last revised: June 28, 2014

Suggested Citation

Banerjee, Snehal and Liu, Qingmin, Transparency versus Tone: Public Communication with Limited Commitment (June 2014). Available at SSRN: http://ssrn.com/abstract=2382667 or http://dx.doi.org/10.2139/ssrn.2382667

Contact Information

Snehal Banerjee (Contact Author)
University of California, San Diego (UCSD) - Rady School of Management ( email )
9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
Qingmin Liu
Columbia University ( email )
3022 Broadway
New York, NY 10027
United States
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