Title : Central bank's stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing
Author(s) : Camille Cornand, Rodolphe Dos Santos Ferreira
Abstract : Using a simple microfounded macroeconomic model with price making firms and a central bank maximizing the welfare of a representative household, it is shown that the presence of firms' motivated beliefs has stark consequences for the conduct of optimal communication and stabilization policies. Under pure communication (resp. communication and stabilization policies), motivated beliefs about own private information (resp. own ability to process information) reverse the bang-bang solution of transparency (resp. opacity with full stabilization) found in the literature under objective beliefs and lead to intermediate levels of communication (and stabilization).
Key-words : motivated beliefs, public and private information (accuracy), overconfidence, communication policy, stabilization policy.
JEL Classification : D83, D84, E52, E58.