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Central bank communication and stabilization policies under firms’ motivated beliefs

Author

Listed:
  • Camille Cornand

    (CNRS, GATE UMR 5824)

  • Rodolphe Dos Santos Ferreira

    (BETA, University of Strasbourg
    Católica Lisbon School of Business and Economics)

Abstract

Using a simple microfounded macroeconomic model with price making firms and a central bank maximizing the welfare of a representative household, we show that the presence of firms’ motivated beliefs has stark consequences for central banks’ optimal communication and stabilization policies. Under pure communication, motivated beliefs overweighting the accuracy of firms’ private information may reverse the bang-bang solution of transparency found in the literature under objective beliefs and lead to intermediate levels of communication. Similarly, when communication and stabilization policies are combined, motivated beliefs overweighting firms’ ability to process idiosyncratic information in general may reverse the bang-bang solution of opacity applying under objective beliefs, leading again to intermediate levels of communication and stabilization.

Suggested Citation

  • Camille Cornand & Rodolphe Dos Santos Ferreira, 2025. "Central bank communication and stabilization policies under firms’ motivated beliefs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(2), pages 687-721, March.
    • Handle: RePEc:spr:joecth:v:79:y:2025:i:2:d:10.1007_s00199-024-01598-1
    DOI: 10.1007/s00199-024-01598-1
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    More about this item

    Keywords

    Motivated beliefs; Public and private information (accuracy); Overconfidence; Communication policy; Stabilization policy;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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