Transparency and monetary policy with imperfect common knowledge /

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Bibliographic Details
Author / Creator:Roca, Mauro, author.
Imprint:[Washington, D.C.] : International Monetary Fund, ©2010.
Description:1 online resource (27 pages)
Language:English
Series:IMF working paper ; WP/10/91
IMF working paper ; WP/10/91.
Subject:
Format: E-Resource Book
URL for this record:http://pi.lib.uchicago.edu/1001/cat/bib/12495721
Hidden Bibliographic Details
Other authors / contributors:International Monetary Fund. Research Department, issuing body.
ISBN:9781452776279
145277627X
1282845748
9781282845749
1462355749
9781462355747
9786612845741
6612845740
1451982577
9781451982572
Notes:Includes bibliographical references.
Summary:Is it desirable that central banks be more transparent in the communication of sensible information when agents have diverse private information? In practice, there exists some consensus about the benefits of acting in this way. However, other studies warn that increasing the precision of public information may raise the volatility of some aggregate variables - in particular, the price level - due to the disproportionate influence that it exerts on agents' decisions, and that this, in turn, will have negative effects on welfare. This paper studies the welfare effects of varying levels of transparency in a model of price-setting under monopolistic competition and imperfect common knowledge. Our results indicate that more precise public information never leads to a reduction of welfare in this framework. We find that the beneficial effects of decreased imperfect common knowledge due to a more precise common signal always compensates the potential rise in aggregate volatility. Moreover, we show that, in contrast to what has previously been assumed, the variability of the aggregate price level has no detrimental welfare effects in this model.
Other form:Print version: Roca, Mauro. Transparency and Monetary Policy with Imperfect Common Knowledge. Washington : International Monetary Fund, ©2010 9781451982572