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Abstract

In this paper, we examine whether the transparency of the central bank's preferences is desirable. We make two major points. First, in the literature on preference transparency variance-reduction frameworks are often adopted. As a consequence a change in the degree of transparency affects the magnitude of information asymmetries, but at the same time it implies a rather arbitrary effect on the distribution of preferences. We present a clean framework without this problem. Second, using a very general specification of shocks to the central bank's preferences, we show that society prefers transparency if it sufficiently values the employment target, whereas it prefers opacity if it estimates inflation as sufficiently important. Copyright 2008 The Author. Journal Compilation Verein für Socialpolitik and Blackwell Publishing Ltd. 2008.

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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 10 (2009)
Issue (Month): (02)
Pages: 32-49

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Handle: RePEc:bla:germec:v:10:y:2009:i::p:32-49

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1. Eijffinger, Sylvester C W & Hoeberichts, Marco & Schaling, Eric, 2000. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(2), pages 218-35, May.
   
   • Eijffinger, S.C.W. & Hoeberichts, M.M. & Schaling, E., 1997. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique," Discussion Paper 1997-47, Tilburg University, Center for Economic Research.
2. Jon Faust & Lars E.O. Svensson, 1998. "Transparency and credibility: monetary policy with unobservable goals," International Finance Discussion Papers 605, Board of Governors of the Federal Reserve System (U.S.).
   
   • Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-97, May.
   • Faust, Jon & Svensson, Lars E O, 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," CEPR Discussion Papers 1852, C.E.P.R. Discussion Papers.
   • Jon Faust & Lars E. O. Svensson, 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," NBER Working Papers 6452, National Bureau of Economic Research, Inc.
   • Svensson, Lars E.O. & Faust, John, 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," Seminar Papers 636, Stockholm University, Institute for International Economic Studies.
   • Faust, J. & Svensson, L.E.O., 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," Papers 636, Stockholm - International Economic Studies.
3. Eijffinger, Sylvester & Hoeberichts, Marco & Schaling, Eric, 2003. " Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 137-39, February.
4. Jensen, Henrik, 2001. "Optimal Degrees of Transparency in Monetary Policymaking," CEPR Discussion Papers 2689, C.E.P.R. Discussion Papers.
   
   • Jensen, Henrik, 2002. " Optimal Degrees of Transparency in Monetary Policymaking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 399-422, September.
   • Henrik Jensen, . "Optimal Degrees of Tranaparency in Monetary Policymaking," EPRU Working Paper Series 01-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
   • Jensen, Henrik, 2001. "Optimal degrees of transparency in monetary policymaking," Discussion Paper Series 1: Economic Studies 2001,04, Deutsche Bundesbank, Research Centre.
5. Andrew Hughes Hallett & Diana N. Weymark, 2005. "Independence Before Conservatism: Transparency, Politics and Central Bank Design," German Economic Review, Verein für Socialpolitik, vol. 6(1), pages 1-21, 02.
   
   • Hughes Hallett, Andrew & Weymark, Diana, 2002. "Independence before Conservatism: Transparency, Politics and Central Bank Design," CEPR Discussion Papers 3336, C.E.P.R. Discussion Papers.
   • Andrew Hughes Hallett & Diana N. Weymark, 2002. "Independence Before Conservatism: Transparency, Politics, and Central Bank Design," Vanderbilt University Department of Economics Working Papers 0202, Vanderbilt University Department of Economics.
6. Hans Gersbach & Volker Hahn, 2008. "Should the individual voting records of central bankers be published?," Social Choice and Welfare, Springer, vol. 30(4), pages 655-683, May.
   
   • Hahn, Volker & Gersbach, Hans, 2001. "Should the Individual Voting Records of Central Bankers be Published?," Discussion Paper Series 1: Economic Studies 2001,02, Deutsche Bundesbank, Research Centre.
7. Clive Briault & Andrew Haldane & Mervyn King, 1996. "Independence and Accountability," Bank of England working papers 49, Bank of England.
8. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank, Research Centre.
9. Beetsma, Roel M W J & Jensen, Henrik, 2003. " Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 129-36, February.
10. Hans Gersbach, 2003. "On the negative social value of central banks' knowledge transparency," Economics of Governance, Springer, vol. 4(2), pages 91-102, 08.
11. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
12. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.

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Cited by:

1. Geraats, P.M., 2005. "The Mystique of Central Bank Speak," Cambridge Working Papers in Economics 0543, Faculty of Economics, University of Cambridge.
   
   • Petra M. Geraats, 2007. "The Mystique of Central Bank Speak," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 37-80, March.
   • Petra Geraats, 2007. "The Mystique of Central Bank Speak," Working Papers 123, Oesterreichische Nationalbank (Austrian Central Bank).
2. Sweidan, Osama D. & Widner, Benjamin, 2008. "Transparency and central bank losses in developing countries," Research in Economics, Elsevier, vol. 62(1), pages 45-54, March.
3. Malcolm Edey, 2006. "An Australian perspective on inflation targeting, communication and transparency," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 3-24 Bank for International Settlements.
4. Sánchez, Marcelo, 2009. "Monetary Union of Small Open Economies: The Role of Trasparency Misperceptions," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 62(4), pages 469-504.
5. Volker Hahn, 2012. "Designing Monetary Policy Committees," Working Paper Series of the Department of Economics, University of Konstanz 2012-23, Department of Economics, University of Konstanz.
6. Carsten Hefeker, 2011. "Policy Uncertainty and Economic Reforms in a Monetary Union," German Economic Review, Verein für Socialpolitik, vol. 12(3), pages 274-285, 08.

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