The Return of Greenspan: Mumbling with Great Incoherence

45 Pages Posted: 27 Apr 2022

See all articles by Shengliang Ou

Shengliang Ou

Shanghai University of Finance and Economics

Donghai Zhang

Institute for Macroeconomics and Econometrics - University of Bonn; National University of Singapore (NUS), Department of Economics

Renbin Zhang

Shandong University

Date Written: April 17, 2022

Abstract

Conventional wisdom regards a reduced aggregate noise as welfare improving. This study demonstrates that increased transparency regarding the unobserved state of the economy may reduce social welfare owing to the presence of nominal rigidity. On the one hand, costly business cycle fluctuations and price dispersions arising from nominal rigidity are muted in a noisy economy. On the other hand, an economy with less transparency suffers from efficiency losses due to inefficient coordination in pricing decisions. Monetary policy affects the tradeoff, and thus interacts with communication policy. We characterize the conditions under which more transparency reduces social welfare.

Keywords: Central Bank Communication, Sticky Prices, Dispersed Information, Informa- tion Frictions, Monetary Policy

JEL Classification: E31, E32, E52, E58

Suggested Citation

Ou, Shengliang and Zhang, Donghai and Zhang, Renbin, The Return of Greenspan: Mumbling with Great Incoherence (April 17, 2022). Available at SSRN: https://ssrn.com/abstract=4085073 or http://dx.doi.org/10.2139/ssrn.4085073

Shengliang Ou

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Donghai Zhang (Contact Author)

Institute for Macroeconomics and Econometrics - University of Bonn ( email )

Bonn
Germany

National University of Singapore (NUS), Department of Economics ( email )

Singapore
Singapore

Renbin Zhang

Shandong University ( email )

shanda nanlu 27
jinan, Shandong 250100
China

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