This article was originally published in the Board of Governors of the Federal Reserve System Open Market Policies and Operating Procedures-Staff Studies, July 1971. It is reprinted here as an addendum to these conference proceedings.

By providing guidance about future economic developments, central banks can affect private sector expectations and decisions. This can improve welfare by reducing private sector forecast errors, but it can also magnify the impact of noise in central bank forecasts. I employ a model of...