Transparency, the opacity bias, and optimal flexible inflation targeting (original) (raw)

Optimal transparency under flexible inflation targeting

2005

Inflation targeting central banks have been at the forefront of the movement for greater transparency. In this paper, I explore a dimension of transparency that is typically ignored in this literature -the extent to which public information provided by the central bank is disseminated. When the private sector has diverse information about aggregate shocks, and this information is less accurate than the central bank's information, widely distributed announcements by the central bank will be optimal for central banks that are flexible inflation targeters as long as the weight on output stabilization is not too large.

Transparency, flexibility, and inflation targeting

2006

La serie de Documentos de Trabajo en versión PDF puede obtenerse gratis en la dirección electrónica: http://www.bcentral.cl/esp/estpub/estudios/dtbc. Existe la posibilidad de solicitar una copia impresa con un costo de 500siesdentrodeChileyUS500 si es dentro de Chile y US500siesdentrodeChileyUS12 si es para fuera de Chile. Las solicitudes se pueden hacer por fax: (56-2) 6702231 o a través de correo electrónico: bcch@bcentral.cl. and Federal Reserve Bank of San Francisco

The Optimal Transparency of Monetary Policy

International Journal of Academic Research in Economics and Management Sciences, 2017

In this study, optimal transparency is examined in terms of monetary policy. Since about the last two decades, more emphasis has been placed on implementations of the monetary policy transparency for the success of the inflation targeting regime adopted by many countries. It is considered that transparency will be beneficial, such as the ability of central banks to make better predictions of economic units and to increase the credibility and persuasion power of the central bank. It is assumed that practices in this context will produce better results for the effectiveness of the monetary policy, but there is not always an expected outcome for an increase in the level of transparency. With this study, the negative effects of high transparency are put forth and what the optimal level of transparency should be is dealt with. In addition, the development of the central bank of the republic of Turkey in the context of transparency is stated.

Three different approaches to transparency in monetary policy

Economia Politica, 2015

We present three different views of imperfect transparency in monetary policy: political transparency, economic transparency and constructive ambiguity. The first two show that transparency reduces the variability of inflation and the output gap but does not affect their average levels. But if the Central Bank is unable to commit to one particular set of preferences for all circumstances, then in line with the hypothesis of constructive ambiguity we find that both the levels and the variability of output and inflation will be affected-which means that this form of imperfect transparency could be used strategically. An empirical examination of these results, based on an index constructed by Eijffinger and Geraats, shows that macroeconomic averages are not much affected by transparency. But transparency appears to reduce the variability of inflation while increasing the variability of output. That suggests that Central Banks may in fact exploit constructive ambiguity when they try to be transparent. Keywords Ambiguity Á Imperfect transparency Á Independent monetary policies JEL Classification E52 Á E58 Views expressed are our own and do not necessarily reflect those of the institutions we are affiliated with.

Optimal Transparency of Monetary Policy

The Optimal Transparency of Monetary Policy, 2017

Optimal central bank transparency

Journal of International Money and Finance, 2010

Should central banks increase their degree of transparency any further? We show that there is likely to be an optimal intermediate degree of central bank transparency. Up to this optimum more transparency is desirable: it improves the quality of private sector inflation forecasts. But beyond the optimum people might: (1) start to attach too much weight to the conditionality of their forecasts, and/or (2) get confused by the large and increasing amount of information they receive. This deteriorates the (perceived) quality of private sector inflation forecasts. Inflation then is set in a more backward looking manner resulting in higher inflation persistence. By using a panel data set on the transparency of 100 central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while there are central banks that would benefit from further transparency increases, some might already have reached the limit. JEL codes: E31, E52, E58 Keywords: central bank transparency, monetary policy, inflation persistence. * Views expressed are our own and do not necessarily reflect those of the institutions we are affiliated with. We would like to thank seminar participants at De Nederlandsche Bank, Alan Blinder, Marcel Fratzscher, Marco Hoeberichts, Joris Knoben and Ad Stokman for helpful comments and suggestions. † c.a.b.van.der.cruijsen@dnb.nl

Can Opacity of a Credible Central Bank Explain Excessive Inflation

2007

Excessive inflation is usually attributed to the lack of central bank’s credibility. In this context, most of the literature considers transparency a means to establish central bank’s credibility. The contribution of this paper is twofold. First, it shows that, even in the absence of inflationary bias, a credible central bank may find it optimal to implement an accommodating monetary policy in response to cost-push shocks whenever the uncertainty surrounding its monetary instrument is high. Indeed, the degree of central bank’s transparency influences the effectiveness of its policy to stabilize inflation in terms of output gap, and thereby whether it will implement an expansionary or contractionary policy in response to cost-push shocks. Second, it stresses that transparency is not just a means to achieve credibility but is essential per se for the optimality of monetary policy of a fully credible central bank.

Three models of imperfect transparency in monetary policy

Three Models of Imperfect Transparency in Monetary Policy* We present three different models of imperfect transparency in monetary policy: political transparency, economic transparency and constructive ambiguity. The first two show that transparency reduces the variability of inflation and the output gap but does not affect their average levels. But if the Central Bank is unable to commit to one particular set of preferences for all circumstances, in line with the hypothesis of constructive ambiguity, we find that both the levels and the variability of output and inflation may be affected. An empirical examination of these predictions, based on an index recently constructed by Eijffinger and Geraats, shows that macroeconomic averages are not much affected by transparency. But transparency appears to reduce the variability of inflation while increasing the variability of output. That suggests that Central Banks may have been exploiting constructive ambiguity more than a lack of transparency. JEL Classification: E52 and E58

Central Bank transparency in theory and practice

Journal of Macroeconomics, 2007

We study the e¤ects of Central Bank transparency on in ‡ation and the output gap. Our intention is to illustrate, through the help of a small analytical model, how an imperfectly transparent Central Bank, a¤ects the two main macroeconomic variables, in ‡ation and the output gap. The model tells us that transparency a¤ects the variability of in ‡ation and output but not their average levels. Then we examine the extent to which this conjecture is justi…ed by the recently devised index of transparency by Eij¢nger and Geraats. Given the limitations of such indices, we only examine the correlations between the index of transparency and the macro variables in question. This analysis shows that the average magnitudes are not a¤ected by transparency but their variability is. In the case of in ‡ation, its variability bene…ts from the reduction of transparency and about 50% is explained by the variability in the transparency index. The e¤ect on output volatility on the other hand is less clear, and in any case transparency seems to increase it rather than decrease it. J.E.

Monetary Policy Transparency in the Inflation Targeting

2005

This paper quantifies transparency of monetary policy in the three EU New Member States that have adopted direct inflation targeting strategy. Two measures of transparency are applied. The institutional measure reflects the extent to which a central bank discloses information that is related to the policymaking process. The behavioural measure reflects the clarity among the financial market participants about the

Transparency, the opacity bias, and optimal flexible inflation targeting (original) (raw)

Related papers