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Announcements, Inflation Targeting and Central Bank Incentives

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Author Info
Walsh, Carl E

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Abstract

This paper studies the incentives a central bank faces in announcing inflation targets when the central bank has private information about the economy and the public is uncertain about the central bank's preferences. Targeting rules in the absence of announcements reduce the inflationary bias of discretionary policy but they distort the central bank's response to private information about the economy. This distortion is eliminated when the central bank is allowed to announce the inflation target. Announcements also affect credibility, although the way they do so depends on the exact definition of credibility that is employed. Copyright 1999 by The London School of Economics and Political Science

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Publisher Info
Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 66 (1999)
Issue (Month): 262 (May)
Pages: 255-69
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Handle: RePEc:bla:econom:v:66:y:1999:i:262:p:255-69

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  1. Taner Yigit, 2007. "Inflation Targeting : An Indirect Approach to Assess the Direct Impact," Departmental Working Papers 0706, Bilkent University, Department of Economics. [Downloadable!]
  2. N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. repec:bep:mactop:v:5:y:2005:i:1:p:1277-1277 is not listed on IDEAS
  4. Christos Ioannidis, & Oreste Napolitano, 2003. "Optimal Monetary Policy and the Asset Market:A Non-cooperative Game," Public Policy Discussion Papers 03-25, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
    Other versions:
  5. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 1998. "Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions," Working Papers 9815, Department of Economics, University of Glasgow, revised Aug 1998. [Downloadable!]
    Other versions:
  6. Ronald A. Ratti & Sang-Kun Bae, 2004. "Inflation Contracts, Inflation and Exchange Rate Targeting, and Uncertain Central Bank Preferences," Working Papers 0422, Department of Economics, University of Missouri, revised 21 Dec 2004. [Downloadable!]
  7. Lavan Mahadeva & Gabriel Sterne, . "The role of short-run inflation targets and forecasts in disinflation," Bank of England working papers 167, Bank of England. [Downloadable!]
  8. Taner Yigit & Banu Demir, 2007. "Announcements and Credibility under Inflation Targeting," Departmental Working Papers 0705, Bilkent University, Department of Economics. [Downloadable!]
    Other versions:
  9. Jon Faust & Lars E.O. Svensson, 1999. "The equilibrium degree of transparency and control in monetary policy," International Finance Discussion Papers 651, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  10. Maria Demertzis & Andrew Hughes Hallett, 2004. "Rational Ambiguity and Monitoring the Central Bank," Working Papers 0404, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  11. Nergiz Dincer & Barry Eichengreen, 2009. "Central Bank Transparency: Causes, Consequences and Updates," NBER Working Papers 14791, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Carl E. Walsh, 2006. "Transparency, Flexibility, and Inflation Targeting," Working Papers Central Bank of Chile 401, Central Bank of Chile. [Downloadable!]
  13. Carl Walsh, 2007. "Inflation Targeting and the Role of Real Objectives," Research and Policy Notes 2007/02, Czech National Bank, Research Department. [Downloadable!]
  14. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers 6070, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. Seth B. Carpenter, 2004. "Transparency and monetary policy: what does the academic literature tell policymakers?," Finance and Economics Discussion Series 2004-35, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  16. Carl E. Walsh, 2008. "Announcements and the role of policy guidance," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 421-442. [Downloadable!]
  17. Anton Muscatelli & Patrzio Tirelli & Carmine Trecroci, 1998. "Does Institutional Change Really Matter? Inflation Targets, Central Bank Reform And Interest Rate Policy In The Oecd Countries," Working Papers 1999_20, Department of Economics, University of Glasgow, revised Jul 1999. [Downloadable!]
    Other versions:
  18. Bernhard Winkler, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 26, European Central Bank. [Downloadable!]
  19. Carl E. Walsh, 2007. "Optimal Economic Transparency," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 5-36, March. [Downloadable!]
  20. Demertzis, Maria & Hughes Hallett, Andrew, 2005. "Forming Rational Expectations and When it is Right to be 'Wrong'," CEPR Discussion Papers 5042, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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