Abstract
Theoretical results from previous work, presented in Kool, Middeldorp and
Rosenkranz (2007), suggest that central bank communication crowds out private
information acquisition and that this effect can lead to a deterioration of the ability
of financial markets to predict future policy interest rates. We examine this result
in an experimental asset market that closely follows the theoretical model.
Crowding out of information acquisition takes place and, where this crowding out is
most rapid, there is deterioration of the market’s predictive ability. This supports
the theoretical result that central bank communication can actually make it more
difficult for financial markets to predict future policy rates.
Rosenkranz (2007), suggest that central bank communication crowds out private
information acquisition and that this effect can lead to a deterioration of the ability
of financial markets to predict future policy interest rates. We examine this result
in an experimental asset market that closely follows the theoretical model.
Crowding out of information acquisition takes place and, where this crowding out is
most rapid, there is deterioration of the market’s predictive ability. This supports
the theoretical result that central bank communication can actually make it more
difficult for financial markets to predict future policy rates.
| Original language | English |
|---|---|
| Place of Publication | Utrecht |
| Publisher | UU USE Tjalling C. Koopmans Research Institute |
| Number of pages | 39 |
| Publication status | Published - Jun 2008 |
Publication series
| Name | Discussion Paper Series / Tjalling C. Koopmans Research Institute |
|---|---|
| No. | 26 |
| Volume | 08 |
| ISSN (Electronic) | 2666-8238 |
Keywords
- Experimental Economics
- Private Information Acquisition
- Information and Financial Market Efficiency
- Central bank transparency and communication