Does the federal reserve possess an exploitable informational advantage?

This paper provides evidence that the Federal Reserve has an informational advantage over the public that can be exploited to improve activist monetary policy. The informational superiority does not result from the Fed having earlier access to publicly released financial data. Instead, this advantage is generated by confidential supervisory knowledge about troubled, non-publicly traded institutions. As a result, this information can remain confidential for an extended period, since these banks have neither the desire to fully disclose the extent of their financial troubles, nor the requirement to do so. The informational advantage is both statistically significant and economically important, providing a potential justification for activist monetary policy.