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Policy Announcement Design

Author

Listed:
  • Anna Cieslak

    (Duke University - Fuqua School of Business)

  • Semyon Malamud

    (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute)

  • Andreas Schrimpf

    (Bank for International Settlements (BIS) - Monetary and Economic Department)

Abstract

We study the general problem of information design for a policymaker - a central bank - that communicates its private information (the "state") to the public. We show that it is optimal for the policymaker to partition the state space into a finite number of "clusters” and to communicate to the public to which cluster the state belongs. Optimal communication is more precise when the policymaker's beliefs conform with prior public expectations, but is more vague in case of divergence. We characterize the policymaker's trade-offs via a novel object - the information relevance matrix - and label its eigenvectors as principal information components (PICs). PICs with the highest eigenvalues determine the dimensions of information with the highest welfare sensitivity and, hence, are the ones that the policymaker should be most precise about.

Suggested Citation

  • Anna Cieslak & Semyon Malamud & Andreas Schrimpf, 2020. "Policy Announcement Design," Swiss Finance Institute Research Paper Series 20-17, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2017
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    More about this item

    Keywords

    Central Bank Announcements; Learning; Bayesian Persuasion; Information Design;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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