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Transparency In Monetary Policy, Signaling, And Heterogeneous Information

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  • Hahn, Volker

Abstract

We examine the welfare implications of two types of central-bank transparency: the publication of the information underlying the central bank's decision (decision transparency) and the release of the information that the central bank observes afterwards (postdecision transparency). Decision transparency does not make the public better informed in equilibrium. Even so, it may be socially desirable because it eliminates harmful equilibria. Postdecision transparency has ambiguous effects. It reduces output variance and the distortions stemming from heterogeneous information. In this sense, it can be used as a substitute for monetary policy. However, postdecision transparency generally raises the variance of inflation. We argue that a conflict of interests may arise between society and the central bank with regard to transparency.

Suggested Citation

  • Hahn, Volker, 2014. "Transparency In Monetary Policy, Signaling, And Heterogeneous Information," Macroeconomic Dynamics, Cambridge University Press, vol. 18(2), pages 369-394, March.
    • Handle: RePEc:cup:macdyn:v:18:y:2014:i:02:p:369-394_00
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    Cited by:

    1. Wataru Tamura, 2016. "Optimal Monetary Policy and Transparency under Informational Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(6), pages 1293-1314, September.
    2. Jonathan G James & Phillip Lawler, 2017. "Optimal Transparency and Policy Intervention with Heterogeneous Signals and Information Stickiness," Manchester School, University of Manchester, vol. 85(5), pages 577-600, September.
    3. Meixing Dai & Moïse Sidiropoulos, 2017. "How multiplicative uncertainty affects the tradeoff between information disclosure and stabilisation policy?," Working Papers of BETA 2017-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Jonathan G. James & Philip Lawler, 2024. "Clarity of Central Bank Communication and the Social Value of Public Information," Working Papers 2024-03, Swansea University, School of Management.
    5. Jonathan G. James & Phillip Lawler, 2015. "Heterogeneous private sector information, central bank disclosure, and stabilization policy," Southern Economic Journal, John Wiley & Sons, vol. 82(2), pages 620-634, October.

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