Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
In this paper, we construct a simple model for communication between a central bank and money-market traders. It is demonstrated that there are multiple equilibria. In one equilibrium, traders truthfully reveal their own information, and by learning this, the central bank can make better forecasts. Another equilibrium is a dog-chasing-its-tail equilibrium described by Blinder (1998). Traders mimic the central banks forecast, so the central bank simply observes its own forecast from traders. The latter equilibrium is socially worse, as inflation variability becomes larger. As policy implications, we find that too-high transparency of central banks is bad because it yields the dog-chasing-its-tail equilibrium, and central banks should conduct continuous monitoring or emphasize that their forecasts are conditional because doing so eliminates the dog-chasing-its-tail equilibrium. We also consider the possibility of the existence of an optimal degree of transparency.