Imperfect Central Bank Communication - Information versus Distraction

33 Pages Posted: 24 Mar 2008

See all articles by Pär Österholm

Pär Österholm

International Monetary Fund (IMF)

Spencer Dale

Bank of England

Athanasios Orphanides

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Asia School of Business

Date Written: March 2008

Abstract

Much of the information communicated by central banks is noisy or imperfect. This paper considers the potential benefits and limitations of central bank communications in a model of imperfect knowledge and learning. It is shown that the value of communicating imperfect information is ambiguous. There is a risk that the central bank can distract the public; this means that the central bank may prefer to focus its communication policies on the information it knows most about. Indeed, conveying more certain information may improve the public's understanding to the extent that it "crowds out" a role for communicating imperfect information.

Keywords: Central banks, Transparency

Suggested Citation

Österholm, Pär and Dale, Spencer and Orphanides, Athanasios, Imperfect Central Bank Communication - Information versus Distraction (March 2008). IMF Working Paper No. 08/60, Available at SSRN: https://ssrn.com/abstract=1112202

Pär Österholm (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Spencer Dale

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Athanasios Orphanides

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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E62-416
Cambridge, MA 02142
United States

HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=54058

Asia School of Business ( email )

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Kuala Lumpur, MA
Malaysia