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
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: Suggested Citation