Why the Publication of Socially Harmful Information May Be Socially Desirable

CER-ETH Economics Working Paper No. 09/122

37 Pages Posted: 30 Nov 2009

Date Written: November 2009

Abstract

We propose a signaling model in which the central bank and firms receive information on cost-push shocks independently from each other. If the firms’ signals are rather unlikely to be informative, central banks should remain silent about their own private signals. If, however, firms are sufficiently likely to be informed, it is socially desirable for the central bank to reveal its private information. By doing so, the central bank eliminates the distortions stemming from the signaling incentives under opacity. Our model may also explain the recent trend towards more transparency in monetary policy.

Keywords: signaling games, transparency, monetary policy, central banks, communication

JEL Classification: D82, D83, E58

Suggested Citation

Hahn, Volker, Why the Publication of Socially Harmful Information May Be Socially Desirable (November 2009). CER-ETH Economics Working Paper No. 09/122. Available at SSRN: https://ssrn.com/abstract=1515649 or http://dx.doi.org/10.2139/ssrn.1515649

Volker Hahn (Contact Author)

University of Konstanz ( email )

Box 143
Konstanz, 78457
Germany

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