On the Social Cost of Transparency in Monetary Economies

Federal Reserve Bank of St. Louis Working Paper No. 2010-001A

24 Pages Posted: 4 Jan 2010

See all articles by David Andolfatto

David Andolfatto

Simon Fraser University (SFU) - Department of Economics; Federal Reserve Bank of St. Louis

Date Written: January 4, 2010

Abstract

I study a class of models commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to exogenous news events, but whose expected long-run return is independent of this information. I show that there are circumstances in which the nondisclosure of news by an asset manager is welfare-improving. When nondisclosure is infeasible, the framework admits a role for government debt. The theory is used to interpret the nondisclosure practices of reputable financial agencies and suggests caveats for legislation designed to promote financial market transparency.

Keywords: Transparency, Nondisclosure, Incentive-Feasible Allocations

JEL Classification: E41, E42, E44

Suggested Citation

Andolfatto, David, On the Social Cost of Transparency in Monetary Economies (January 4, 2010). Federal Reserve Bank of St. Louis Working Paper No. 2010-001A, Available at SSRN: https://ssrn.com/abstract=1531244 or http://dx.doi.org/10.2139/ssrn.1531244

David Andolfatto (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

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Federal Reserve Bank of St. Louis ( email )

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