Clarity of Central Bank Communication and the Social Value of Public Information

The issue of optimal central bank disclosure of its information regarding aggregate demand shocks is revisited in the context of a widely studied model featuring monopolistically competitive firms whose observations of central bank announcements are subject to private errors. Given the existence of such ‘receiver noise’, the principal conclusion drawn by previous contributions using this framework is found to be overturned when a plausible additional modification is made to the information structure: namely, the existence of public information which is exogenous in the sense that its informativeness regarding shock realizations is beyond the central bank’s influence. For plausible parameterizations, full disclosure of its own information by the central bank is found to be welfare-dominated by a policy of partial obfuscation. The key insight is found to have wider relevance beyond the specific macroeconomic framework deployed, notably to models of supply-schedule competition in homogeneous-good markets.