Public policy signals can be beneficial, says BIS paper

bank-for-international-settlements

A working paper published by the Bank for International Settlements (BIS) on September 3 examines the effect of policy signals on economic fundamentals.

The authors, Stefan Avdjiev, Patrick McGuire and Nikola Tarashev, construct a model where public policy signals provide precise information and where individual market participants have an incentive to co-ordinate their actions in response.

The paper shows that in an integrated market, the information role "dominates" the co-ordination role

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