Policy Announcement Design

58 Pages Posted: 8 Jan 2020

See all articles by Anna Cieslak

Anna Cieslak

Duke University - Fuqua School of Business

Semyon Malamud

Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: December 16, 2019

Abstract

We study the general problem of information design for a policymaker - a central bank - that communicates its private information (the "state") to the public. We show that it is optimal for the policymaker to partition the state space into a finite number of "clusters” and to communicate to the public to which cluster the state belongs. Optimal communication is more precise when the policymaker's beliefs conform with prior public expectations, but is more vague in case of divergence. We characterize the policymaker's trade-offs via a novel object - the information relevance matrix - and label its eigenvectors as principal information components (PICs). PICs with the highest eigenvalues determine the dimensions of information with the highest welfare sensitivity and, hence, are the ones that the policymaker should be most precise about.

Keywords: Central Bank Announcements, Learning, Bayesian Persuasion, Information Design

JEL Classification: D82, D83, E52, E58

Suggested Citation

Cieslak, Anna and Malamud, Semyon and Schrimpf, Andreas, Policy Announcement Design (December 16, 2019). Available at SSRN: https://ssrn.com/abstract=3504738 or http://dx.doi.org/10.2139/ssrn.3504738

Anna Cieslak

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919 660 7879 (Phone)

HOME PAGE: https://sites.google.com/site/ancieslak/

Semyon Malamud (Contact Author)

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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