Optimal Policy Intervention and the Social Value of Public Information

Svensson (2006) argues that Morris and Shin (2002) is, contrary to what is claimed, pro-transparency. This paper re-examines the issue but with an important modification to the original Morris and Shin framework. Recognizing that central banks impact on the economy not only indirectly via public announcements, but also directly through policy actions, we consider the social value of public information in the presence of active policy intervention. Our results strengthen Morris and Shin's conclusions considerably: in particular, we find that public disclosure of the central bank's information is unambiguously, i.e. regardless of parameter values, undesirable