European Parliament Library

Transparency and Monetary Policy with Imperfect Common Knowledge, Mauro Roca

Abstract
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
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Model; A. Households; B. Firms; C. Monetary policy; III. Equilibrium under imperfect common knowledge; IV. Welfare effects of transparency; A. An appropriate measure of welfare; V. Objectives of monetary policy; VI. Conclusions; I. Household maximization; II. Optimal pricing rule; III. Welfare; Reference; Footnotes
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (48 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781282845749

Library Locations

  • EP Library Strasbourg

    7 Place Adrien Zeller, Allée du Printemps, Strasbourg, F-67070, FR
    Borrow
  • EP Library Luxembourg

    Rue du Fort Thüngen, Luxembourg, L-1313, LU
    Borrow
  • EP Library Brussels

    60 rue Wiertz, Brussels, B-1047, BE
    Borrow