Optimal Degrees of Transparency in Monetary Policymaking

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138 citations0/0 files storedScandinavian Journal of Economics

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Monetary Policy and Economic Impact Banking stability, regulation, efficiency Economic theories and models

Abstract

According to most academics and policymakers, transparency in monetary policymaking is desirable. I examine this proposition in a small theoretical model emphasizing forward–looking private sector behavior. Transparency makes it easier for price setters to infer the central bank’s future policy intentions, thereby making current inflation more responsive to policy actions. This induces the central bank to pay more attention to inflation rather than output gap stabilization. Then, transparency may be disadvantageous. It may actually be a policy–distorting straitjacket if the central bank enjoys low–inflation credibility, and there is need for active monetary stabilization policy. JEL classification: E42; E52; F58

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References

1999The Science of Monetary Policy: A New Keynesian Perspective 1996Staggered Prices in a Utility-Maximizing Framework 1985The Optimal Degree of Commitment to an Intermediate Monetary Target 1999Inflation dynamics: A structural econometric analysis 1981A Positive Theory of Monetary Policy in a Natural-Rate Model 1999Monetary Policy Rules 1981The Present-Value Relation: Tests Based on Implied Variance Bounds 1986A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information

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2013Identifying transparency 2010Optimal central bank transparency 2002Does It Pay to be Transparent? International Evidence Form Central Bank Forecasts 2002Are Contemporary Central Banks Transparent About Economic Models and Objectives and What Difference Does It Make?2009Central Bank Transparency: Causes, Consequences and Updates 2006Transparency of Monetary Policy: Theory and Practice

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