Research Paper by Associate Professor Zhang Renbin Published Online in Top International Comprehensive Economics Journal Journal of the European Economic Association
Recently, the research paper The Return of Greenspan: Mumbling with Great Incoherence by Associate Professor Zhang Renbin from the School of Economics, Shandong University, was published online in Journal of the European Economic Association, a top international comprehensive economics journal. His co-authors are Associate Professor Ou Shengliang from Shanghai Jiao Tong University and Assistant Professor Zhang Donghai from the National University of Singapore.
In recent years, major central banks around the world have been committed to improving policy transparency by releasing economic forecasts and policy statements, so as to achieve unconventional macro-control by regulating the expectations of economic agents. This practice stems from the traditional economic theory that information transparency helps market participants form consistent expectations and improve economic efficiency. However, through rigorous theoretical modeling and numerical simulation, this paper proves that this traditional cognition may need to be re-examined when there is price stickiness in the real economy.
This research provides a theoretical reference for China's central bank to promote the reform of monetary policy transparency, provides a theoretical support for China to construct a monetary policy communication mechanism adapting to the new development pattern in the digital economy era, and has reference significance for improving the macro-control system, stabilizing market expectations, and improving policy transmission efficiency. The paper discusses the theoretical issue of whether the central bank's increased transparency in market communication can improve social welfare when there is price stickiness in the economy. The study finds that although information transparency helps enterprises coordinate production and pricing decisions more efficiently, price stickiness amplifies the negative effects of information transparency, leading to price dispersion and welfare losses. Through static and dynamic multi-sector models, the paper reveals the interaction between information friction and sticky prices, and points out that in economies with high price stickiness, excessive transparency of the central bank may exacerbate inflation volatility and price distortion. Especially when price stickiness is strong enough, a completely vague communication strategy (such as Greenspan's "vague expression") is more conducive to social welfare. The study also shows that optimal monetary policy can partially mitigate the negative effects of information transparency. When the central bank adopts a policy rule to stabilize a specific price index (such as the optimal inflation index), it can effectively suppress the expansion of price dispersion caused by information transparency. This finding challenges the current trend of central banks pursuing transparency, and provides a new perspective for evaluating the social value of technologies such as artificial intelligence in reducing information acquisition costs. Monetary policy makers need to weigh the pros and cons of information transparency more prudently, guide market expectations through appropriate policy design, and avoid the paradox of "more information, lower efficiency".
Zhang Renbin is an Associate Professor at the School of Economics, Shandong University, with a Ph.D. in Economics from Universitat Autònoma de Barcelona. His research directions are macroeconomics and macrofinance. His research achievements have been published in Journal of the European Economic Association, Journal of Monetary Economics, Economic Theory, Journal of Empirical Finance, and Journal of Economic Behavior and Organization.
Article link:
https://academic.oup.com/jeea/advance-article-abstract/doi/10.1093/jeea/jvaf017/8111606?utm_source=advanceaccess&utm_campaign=jeea&utm_medium=email
