Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?

14 Pages Posted: 8 May 2006

See all articles by Axel Lindner

Axel Lindner

Halle Institute for Economic Research

Abstract

A recent strand of literature shows that multiple equilibria in models of markets for pegged currencies vanish if there is slightly diverse information among traders; see Morris and Shin (2001). It is known that this approach works only if the common knowledge in the market is not too precise. This has led to the conclusion that central banks should try to avoid making their information common knowledge. We develop a model in which more transparency of the central bank implies better private information, because each trader utilises public information according to her own private information. Thus, transparency makes multiple equilibria less likely.

Suggested Citation

Lindner, Axel, Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?. Scandinavian Journal of Economics, Vol. 108, No. 1, pp. 1-14, March 2006, Available at SSRN: https://ssrn.com/abstract=901040 or http://dx.doi.org/10.1111/j.1467-9442.2006.00436.x

Axel Lindner (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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

Paper statistics

Downloads
11
Abstract Views
488
PlumX Metrics