Endogenous Information and Central Bank Transparency
19 Pages Posted: 13 Mar 2015 Last revised: 25 Aug 2015
Date Written: August 25, 2015
This paper studies monetary policy under discretion when the central bank ex ante determines information to be acquired and made public. In a general setting, wherein a monetary instrument signals the central bank's private information, I show that an optimal information policy comprises the full disclosure of acquired information, which eliminates the signaling role of the monetary policy. I find that an information policy combined with a discretionary monetary policy implements an optimal commitment policy. Using a simple monetary model, I characterize the optimal policy that publicizes multiple indices, inducing a correlation in public expectations regarding shocks to the economy.
Keywords: monetary policy, transparency, signaling, information acquisition
JEL Classification: E58, E52, D82, D83
Suggested Citation: Suggested Citation