Information Design, Signaling, and Central Bank Transparency
33 Pages Posted: 19 Jan 2018
Date Written: January 12, 2018
This study examines monetary policy and central bank communication when a monetary instrument signals the central bank's private information. A novel feature is that the central bank ex ante determines how much information it acquires and how much of this information it releases to the public. Using a static model with a neoclassical Phillips curve, I show that an optimal information policy is composed of the full disclosure of the bank's acquired information, eliminating the signaling effect of monetary policy. The optimal signal consists of two linear combinations of three shocks, balancing an informational trade-off between inflation and output stabilization.
Keywords: monetary policy, transparency, signaling, information acquisition, Bayesian persuasion
JEL Classification: E58, E52, D82, D83
Suggested Citation: Suggested Citation