Transparency in Monetary Policy, Signaling, and Heterogeneous Information

Konferenzbeitrag

In this paper we examine whether publishing the information underlying the central bank's decisions is socially desirable. We show that opacity may lead to the same equilibrium as transparency. However, additional equilibria may emerge under opacity with adverse consequences for welfare. Moreover, we explore the extent to which the central bank can use communication as a substitute for monetary policy when its hands are tied due to long lags between monetary-policy implementation and its effects on inflation and output. In this case, transparency has ambiguous effects. It reduces output variance and the distortions stemming from heterogeneous information. However, transparency generally raises the variance of inflation. On balance, transparency is plausible to be socially desirable. We also argue that a conflict of interests may arise between society and the central bank with regard to transparency.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Asymmetric Information and Risk ; No. C8-V2

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Central Banks and Their Policies
• Subject: monetary policy ; transparency ; signaling ; heterogeneous information

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hahn, Volker
• Event: Veröffentlichung
• (who): Verein für Socialpolitik
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/37530
• Last update: 10.03.2025, 11:42 AM CET