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
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: Suggested Citation
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