Central Bank Communication with a Financial Stability Objective

38 Pages Posted: 19 Oct 2020

See all articles by David M. Arseneau

David M. Arseneau

Board of Governors of the Federal Reserve System

Date Written: October, 2020

Abstract

An endogenous financial crisis is introduced into the canonical model used to study central bank transparency. The central bank is endowed with private information about the real economy and credit conditions which jointly determine financial vulnerabilities. An optimal choice is made regarding whether to communicate this information to the public. A key finding is that the optimal communication strategy depends on the state of the credit cycle and the \ composition of shocks driving the cycle. From a policy perspective, this raises the possibility that central bank communication in the presence of a financial stability objective faces a time inconsistency problem.

Keywords: Financial stability report, Information disclosure, Survey of Economic Projections (SEP), Time inconsistency problem, Transparency

JEL Classification: G18, E58, E61

Suggested Citation

Arseneau, David M., Central Bank Communication with a Financial Stability Objective (October, 2020). FEDS Working Paper No. 2020-87, Available at SSRN: https://ssrn.com/abstract=3712519 or http://dx.doi.org/10.17016/FEDS.2020.087

David M. Arseneau (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
24
Abstract Views
167
PlumX Metrics