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The Limits of Transparency

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  • Alex Cukierman

Abstract

This paper probes the limits of transparency in monetary policymaking along two dimensions: feasibility and desirability. It argues that, due to limited knowledge about the economy, even central banks (CBs) that are considered champions of openness are not very clear about their measurement of the output gap and about their beliefs regarding the effect of policy on inflationary expectations. Consequently, feasibility constraints on transparency are more serious than stylized models of the transmission mechanism would imply. In addition, no CB has made clear statements about its objective function, including in particular the relative weight on output versus inflation stabilization, the policy discount factor and the shape of losses from the inflation and the output gaps over the possible ranges of realizations of those variables. Copyright 2009 The Author Journal compilation 2009 Banca Monte dei Paschi di Siena SpA.

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Bibliographic Info

Article provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.

Volume (Year): 38 (2009)
Issue (Month): 1-2 (02)
Pages: 1-37

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Handle: RePEc:bla:ecnote:v:38:y:2009:i:1-2:p:1-37

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Citations

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Cited by:
  1. Sánchez, Marcelo, 2011. "Monetary strictness and labour market outcomes under incomplete transparency," Research in Economics, Elsevier, vol. 65(2), pages 95-99, June.
  2. Gamber, Edward N. & Smith, Julie K., 2009. "Are the Fed's inflation forecasts still superior to the private sector's?," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 240-251, June.
  3. Eijffinger, Sylvester C W & Hoogduin, Lex & van der Cruijsen, Carin A B, 2008. "Optimal Central Bank Transparency," CEPR Discussion Papers 6889, C.E.P.R. Discussion Papers.
  4. Pierre Gosselin, Aileen Lotz and Charles Wyplosz, 2007. "Interest Rate Signals and Central Bank Transparency," IHEID Working Papers 19-2007, Economics Section, The Graduate Institute of International Studies, revised Aug 2007.
  5. Carsten Hefeker & Blandine Zimmer, 2011. "Central Bank Independence and Conservatism under Uncertainty: Substitutes or Complements?," CESifo Working Paper Series 3344, CESifo Group Munich.
  6. Hefeker, Carsten & Zimmer, Blandine, 2011. "The optimal choice of central bank independence and conservatism under uncertainty," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 595-606.
  7. Born, Benjamin & Ehrmann, Michael & Fratzscher, Marcel, 2010. "Macroprudential policy and central bank communication," CEPR Discussion Papers 8094, C.E.P.R. Discussion Papers.
  8. Marek Rozkrut, 2008. "It’s not only WHAT is said, it’s also WHO the speaker is. Evaluating the effectiveness of central bank communication," National Bank of Poland Working Papers 47, National Bank of Poland, Economic Institute.

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