OPTIMAL DEGREE OF PUBLIC INFORMATION DISSEMINATION*

Financial markets and macroeconomic environments are often characterised by positive external-ities. In these environments, transparency may reduce expected welfare: public announcements serve as focal points for higher-order beliefs and affect agents behaviour more than justified by their informational contents. Some scholars conclude that reducing public signals precision or entirely withholding information may improve welfare. This article shows that public information should always be provided with maximum precision but, under certain conditions, not to all agents. Restricting the degree of publicity is a better-suited instrument for preventing the negative welfare effects of public announcements than restrictions on their precision are. There is a general presumption that higher central bank transparency in terms of information disclosure to a wider audience improves the effectiveness of monetary policy and is beneficial to markets as it reduces information asymmetries, helps to assess risk better and arrive at more informed decisions, thus enhancing market efficiency. While practitioners (in central banks and international institutions) agree on the desirability of informative announcements and promote higher transparency on the ground that any information is valuable to markets, recent academic literature distin