Money talks

We study credible information transmission by a benevolent short-lived central bank. When externalities create a wedge between private and social welfare, the central bank has an incentive to misreport its information. Information transmission through monetary policy creates a distortion, thus, lending credibility.

► We study credible information transmission by a benevolent short-lived central bank. ► Externalities create a wedge between private and social welfare. ► As a result, the central bank has an incentive to misreport its information. ► Information transmission through monetary policy creates a distortion, thus, lending credibility.