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When Should Policymakers Make Announcements?

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  • Ricardo Reis

    (Columbia University)

Abstract

If a policymaker learns today that there will be a regime change in the future that affects everyone, at what time between now and then should he/she announce it to the public? This paper presents a dynamic model where agents that have a limited amount of attention to allocate between learning about the new regime and everything else. They trade off the benefit of being better informed and making better decisions when the new regime arrives against the cost of paying less attention to current events and making worse decisions now. By choosing when to make the announcement, the policymaker can affect this decision. The policymaker also takes into account that later announcements are more precise, and that agents may inefficiently put too much weight on public signals due to strategic complementarities. I solve for the optimal timing of announcements and the conditions under which it is optimal to keep mum in spite of public interest. As a by-product, I characterize the life-cycle of attention following an announcement, before and after the regime changes.

Suggested Citation

  • Ricardo Reis, 2011. "When Should Policymakers Make Announcements?," 2011 Meeting Papers 122, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:122
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    References listed on IDEAS

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    Cited by:

    1. Hobler, Stephan, 2022. "Multi-layered rational inattention and time-varying volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    2. Luo, Yulei, 2015. "Robustly Strategic Consumption-Portfolio Rules with Informational Frictions," MPRA Paper 64312, University Library of Munich, Germany.
    3. Mu, Congming & Yang, Jinqiang & Zhang, Yuhua, 2020. "Investment timing with information-processing constraints," Finance Research Letters, Elsevier, vol. 32(C).
    4. Gaetano Gaballo, 2016. "Rational Inattention to News: The Perils of Forward Guidance," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 42-97, January.
    5. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
    6. Luo, Yulei & Young, Eric, 2013. "Rational Inattention in Macroeconomics: A Survey," MPRA Paper 54267, University Library of Munich, Germany.
    7. Luo, Yulei, 2014. "Strategic Consumption-Portfolio Rules and Precautionary Savings with Informational Frictions," MPRA Paper 58077, University Library of Munich, Germany.
    8. McMahon, Michael & Haldane, Andrew & Macaulay, Alistair, 2020. "The 3 E’s of Central Bank Communication with the Public," CEPR Discussion Papers 14265, C.E.P.R. Discussion Papers.
    9. Kinda Hachem & Jing Cynthia Wu, 2017. "Inflation Announcements and Social Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(8), pages 1673-1713, December.
    10. Arnildo da Silva Correa & Paulo Picchetti, 2016. "New Information and Updating of Market Experts’ Inflation Expectations," Working Papers Series 411, Central Bank of Brazil, Research Department.
    11. Yulei Luo, 2017. "Robustly Strategic Consumption–Portfolio Rules with Informational Frictions," Management Science, INFORMS, vol. 63(12), pages 4158-4174, December.
    12. Haldane, Andrew & Macaulay, Alistair & McMahon, Michael, 2020. "The 3 E’s of central bank communication with the public," Bank of England working papers 847, Bank of England.
    13. Laura Gáti, 2023. "Talking Over Time ‐ Dynamic Central Bank Communication," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(5), pages 1147-1176, August.

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