Optimal Economic Transparency
by Carl E. Walsh
Department of Economics, University of California, Santa Cruz
In this paper, I explore the optimal extent to which the central bank should disseminate information among private agents. Individual firms are assumed to have diverse private information, and the central bank provides public information either implicitly, by setting its policy instrument, or explicitly, by making announcements about its short-run targets. The optimal degree of economic transparency is affected differently by cost and demand shocks. More-accurate central bank forecasts of demand shocks reduce optimal transparency, while more-accurate forecasts of cost shocks increase optimal transparency.
Increased persistence in demand (cost) disturbances increases (reduces) optimal transparency.
JEL Codes: E52, E58, E31.
(PDF, 32 pages 303 kb)