Social Value of Information and Optimal Communication Policy of Central Banks
Monetary policy as a tool for expectations management is believed to be most effective if it can coordinate the beliefs and expectations of the economic agents. The optimal communication policy is in an environment where central bank announcements are common knowledge and abundant information is com...
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ftrepec:oai:RePEc:mbr:jmonec:v:9:y:2014:i:3:p:31-57 2024-04-14T08:14:41+00:00 Social Value of Information and Optimal Communication Policy of Central Banks Jalali Naini , Ahmad-Reza Naderian , Mohammad-Amin http://jme.mbri.ac.ir/article-1-184-en.pdf http://jme.mbri.ac.ir/article-1-184-en.html unknown http://jme.mbri.ac.ir/article-1-184-en.pdf http://jme.mbri.ac.ir/article-1-184-en.html article ftrepec 2024-03-19T10:41:56Z Monetary policy as a tool for expectations management is believed to be most effective if it can coordinate the beliefs and expectations of the economic agents. The optimal communication policy is in an environment where central bank announcements are common knowledge and abundant information is complete transparency. The above conclusion is altered in the more realistic situation where economic agents face uncertainty regarding underlying economic fundamentals combined with strategic complementarity between player's actions. The optimal communication policy in a case with imperfect common knowledge is incomplete transparency or a degree of opacity. Uncertainty about the underlying economic state in the presence of strategic complementarity is the origin for the emergence of imperfect common knowledge. We further develop these issues in the context of a Lucas-island model. Full policy transparency in this setting leads to an economic distortion residing in a wedge between economic agent's expectations and optimal fundamental-based allocations - dubbed as over-reaction to the central bank announcements. Optimal communication policy, Common sense, Strategic complementarity, 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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RePEc (Research Papers in Economics) |
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ftrepec |
language |
unknown |
description |
Monetary policy as a tool for expectations management is believed to be most effective if it can coordinate the beliefs and expectations of the economic agents. The optimal communication policy is in an environment where central bank announcements are common knowledge and abundant information is complete transparency. The above conclusion is altered in the more realistic situation where economic agents face uncertainty regarding underlying economic fundamentals combined with strategic complementarity between player's actions. The optimal communication policy in a case with imperfect common knowledge is incomplete transparency or a degree of opacity. Uncertainty about the underlying economic state in the presence of strategic complementarity is the origin for the emergence of imperfect common knowledge. We further develop these issues in the context of a Lucas-island model. Full policy transparency in this setting leads to an economic distortion residing in a wedge between economic agent's expectations and optimal fundamental-based allocations - dubbed as over-reaction to the central bank announcements. Optimal communication policy, Common sense, Strategic complementarity, Transparency |
format |
Article in Journal/Newspaper |
author |
Jalali Naini , Ahmad-Reza Naderian , Mohammad-Amin |
spellingShingle |
Jalali Naini , Ahmad-Reza Naderian , Mohammad-Amin Social Value of Information and Optimal Communication Policy of Central Banks |
author_facet |
Jalali Naini , Ahmad-Reza Naderian , Mohammad-Amin |
author_sort |
Jalali Naini , Ahmad-Reza |
title |
Social Value of Information and Optimal Communication Policy of Central Banks |
title_short |
Social Value of Information and Optimal Communication Policy of Central Banks |
title_full |
Social Value of Information and Optimal Communication Policy of Central Banks |
title_fullStr |
Social Value of Information and Optimal Communication Policy of Central Banks |
title_full_unstemmed |
Social Value of Information and Optimal Communication Policy of Central Banks |
title_sort |
social value of information and optimal communication policy of central banks |
url |
http://jme.mbri.ac.ir/article-1-184-en.pdf http://jme.mbri.ac.ir/article-1-184-en.html |
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://jme.mbri.ac.ir/article-1-184-en.pdf http://jme.mbri.ac.ir/article-1-184-en.html |
_version_ |
1796312906630955008 |