Optimal Central Bank Communication

Communication has become an increasingly important aspect of monetary policy. This paper studies optimal central bank communication in a monetary DSGE model. The basic model setup resembles a New Keynesian model, but private-sector agents have limited attention and optimally allocate attention. Hous...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Author Wiederholt, Mirko
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2016
Subjects
Central banks
Communication
Keynesian theory
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Summary:Communication has become an increasingly important aspect of monetary policy. This paper studies optimal central bank communication in a monetary DSGE model. The basic model setup resembles a New Keynesian model, but private-sector agents have limited attention and optimally allocate attention. Households and decision-makers in firms choose the attention devoted to fundamentals and announcements by the central bank. I characterize the optimal communication strategy by the central bank.