Social value of public information: testing the limits to transparency

Arbeitspapier

Transparency has become an almost universal virtue among central banks. The paper tests empirically, for the case of the Federal Reserve, two hypotheses about central bank transparency derived from the debate of Morris and Shin (2002) and Svensson (2006). First, the paper finds that the precision of communication is a key determinant of the predictability of both FOMC decisions as well as the future policy path. Second, the effectiveness of communication is found to depend on the market environment. Specifically, a given statement may enhance predictability in an environment of high market uncertainty, but may reduce it when uncertainty is low. The findings underline the limits to transparency and stress the need for communication to be flexible and adjust to market conditions in order for central banks to achieve their ultimate objectives.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 821

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies ; Asymmetric and Private Information; Mechanism Design
• Subject: communication ; effectiveness ; Federal Reserve ; monetary policy ; Predictability ; transparency ; Geldpolitik ; Zentralbank ; Glaubwürdigkeit ; Vertrauen ; Zinspolitik ; Theorie ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ehrmann, Michael ; Fratzscher, Marcel
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/153255
• Last update: 10.03.2025, 11:46 AM CET