We study the two-way interaction between central banks and financial markets using a beauty contest framework. The analysis identifies when asset prices reveal useful information about fundamentals and when they reflect back the central bank’s pronouncements. In equilibrium, the central bank...

We show how limited disclosure of the central bank’s private information to select audiences facilitates policy flexibility between scheduled monetary policy meetings. We also clarify when such disclosure is welfare-enhancing. Full paper available at https://doi.org/10.1016/j.econlet.2020.109371