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Essays on Information, Coordination, and Monetary Policy / ANNE PAESS

Swansea University Author: ANNE PAESS

DOI (Published version): 10.23889/SUthesis.59496

Abstract

Greater transparency in policymaking has been a distinct trend among the world’s major central banks in the past 30 years. This trend reflects an established view in the central-banking community that managing expectations in the economy through communication is an important element of monetary polic...

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Published: Swansea 2021
Institution: Swansea University
Degree level: Doctoral
Degree name: Ph.D
Supervisor: Lawler, Phillip ; James, Jonathan
URI: https://cronfa.swan.ac.uk/Record/cronfa59496
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Abstract: Greater transparency in policymaking has been a distinct trend among the world’s major central banks in the past 30 years. This trend reflects an established view in the central-banking community that managing expectations in the economy through communication is an important element of monetary policy. This view implies that there is an inherent connection between central bank transparency, private sector knowledge, and effectiveness of policy.The aim of this thesis is to add to the theoretical body of work by consider-ing optimal policy design in the context of a narrow set of game-theoretic models with strategic complementarities and heterogeneity in private sector information. Each model variation is defined in terms of assumptions about information qual-ity, its acquisition and dissemination. We evaluate policy performance in terms of social welfare outcomes as well as its ability to eliminate informational inefficiencies.In Chapter 2 we extend the seminal Morris and Shin (2002) model to include information stickiness in the private sector, central bank transparency, and direct policy intervention. We find that in our model (i) commitment performs at least as well as discretionary policy, and (ii) optimally designed policy fails to achieve an efficient outcome.In Chapter 3 we extend the Morris and Shin (2002) model to include costly private information acquisition, central bank transparency, and direct policy inter-vention. In an economy with a fixed information cost, the combination of full opacity and an optimally designed policy rule achieves efficiency; whereas, in an economy with a linear-cost structure, optimal policy either eliminates or at least mitigates informational inefficiencies.In Chapter 4 we extend the Morris and Shin (2018) market signal model to include costly information acquisition. We consider private and public information acquisition. We look at how information value of private sector actions enters the central banks optimal commitment strategies.
College: Faculty of Humanities and Social Sciences