Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy
This paper reviews the theoretical arguments and counter arguments regarding central bank optimal communication policy in an environment with imperfect common knowledge and strategic complementarity. More specifically, the paper discusses the environment in which full transparency is no longer neces...
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ftrepec:oai:RePEc:cbk:journl:v:5:y:2016:i:3:p:165-187 2024-04-14T08:14:41+00:00 Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy Ahmad-Reza Jalali Naini Mohammad-Amin Naderian http://www.cbcg.me/repec/cbk/journl/vol5no3-9.pdf unknown http://www.cbcg.me/repec/cbk/journl/vol5no3-9.pdf article ftrepec 2024-03-19T10:34:24Z This paper reviews the theoretical arguments and counter arguments regarding central bank optimal communication policy in an environment with imperfect common knowledge and strategic complementarity. More specifically, the paper discusses the environment in which full transparency is no longer necessarily the superior strategy. Uncertainty about the underlying economic state in the presence of dispersed information is the basis for the emergence of imperfect common knowledge. These issues are further discussed in an augmented Lucas-island model. Full policy transparency in this setting leads to overreliance to central bank public policy signals, resulting in the expectations coordination away from fundamentals - dubbed as over-reaction to central bank announcements. Optimal communication policy in this context entails strategies to limit overreaction via partial transparency or partial publicity. Optimal communication policy, imperfect common knowledge, strategic complementarity, full transparency. Article in Journal/Newspaper Lucas Island RePEc (Research Papers in Economics) Lucas Island ENVELOPE(77.955,77.955,-68.504,-68.504) |
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Open Polar |
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RePEc (Research Papers in Economics) |
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ftrepec |
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description |
This paper reviews the theoretical arguments and counter arguments regarding central bank optimal communication policy in an environment with imperfect common knowledge and strategic complementarity. More specifically, the paper discusses the environment in which full transparency is no longer necessarily the superior strategy. Uncertainty about the underlying economic state in the presence of dispersed information is the basis for the emergence of imperfect common knowledge. These issues are further discussed in an augmented Lucas-island model. Full policy transparency in this setting leads to overreliance to central bank public policy signals, resulting in the expectations coordination away from fundamentals - dubbed as over-reaction to central bank announcements. Optimal communication policy in this context entails strategies to limit overreaction via partial transparency or partial publicity. Optimal communication policy, imperfect common knowledge, strategic complementarity, full transparency. |
format |
Article in Journal/Newspaper |
author |
Ahmad-Reza Jalali Naini Mohammad-Amin Naderian |
spellingShingle |
Ahmad-Reza Jalali Naini Mohammad-Amin Naderian Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy |
author_facet |
Ahmad-Reza Jalali Naini Mohammad-Amin Naderian |
author_sort |
Ahmad-Reza Jalali Naini |
title |
Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy |
title_short |
Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy |
title_full |
Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy |
title_fullStr |
Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy |
title_full_unstemmed |
Over-reaction to Policy Signals, and Central Bank Optimal Communication Policy |
title_sort |
over-reaction to policy signals, and central bank optimal communication policy |
url |
http://www.cbcg.me/repec/cbk/journl/vol5no3-9.pdf |
long_lat |
ENVELOPE(77.955,77.955,-68.504,-68.504) |
geographic |
Lucas Island |
geographic_facet |
Lucas Island |
genre |
Lucas Island |
genre_facet |
Lucas Island |
op_relation |
http://www.cbcg.me/repec/cbk/journl/vol5no3-9.pdf |
_version_ |
1796312906439065600 |