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Transparency and Reputation: The Publication of Central Bank Forecasts

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  • Geraats Petra M.

    ()
    (University of Cambridge)

Abstract

Transparency has become one of the key features of monetary policy. This paper analyzes the reputational incentives related to transparency, focusing on the publication of central bank forecasts. A simple dynamic monetary policy game shows how transparency reduces inflation, as has been found empirically. Furthermore, the endogenous choice of transparency is analyzed. Although transparency exposes weak central banks, the negative market feedback in response to secrecy could provide a sufficiently strong inducement to become transparent. Thus, reputational concerns could lead to transparency, even without formal disclosure requirements.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 5 (2005)
Issue (Month): 1 (February)
Pages: 1-28

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Handle: RePEc:bpj:bejmac:v:topics.5:y:2005:i:1:n:1

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  1. 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.
  2. Cukierman, Alex, 2001. "Are Contemporary Central Banks Transparent about Economic Models and Objectives and What Difference Does it Make?," Discussion Paper Series 1: Economic Studies 2001,05, Deutsche Bundesbank, Research Centre.
  3. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  4. Geraats, Petra M., 2000. "Why Adopt Transparency? The Publication of Central Bank Forecasts," Center for International and Development Economics Research, Working Paper Series qt0hw7h7cp, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  5. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2002. "Does it pay to be transparent? international evidence form central bank forecasts," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 99-118.
  6. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  7. David Backus & John Driffill, 1984. "Inflation and Reputation," Working Papers 560, Queen's University, Department of Economics.
  8. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
  9. Jensen, Henrik, 2001. "Optimal degrees of transparency in monetary policymaking," Discussion Paper Series 1: Economic Studies 2001,04, Deutsche Bundesbank, Research Centre.
  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. Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999. "Is bank supervision central to central banking?," Working Papers 99-7, Federal Reserve Bank of Boston.
  12. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  13. Michelle R. Garfinkel & Seonghwan Oh, 1990. "When and how much to talk: credibility and flexibility in monetary policy with private information," Working Papers 1990-004, Federal Reserve Bank of St. Louis.
  14. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  15. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  16. Robert J. Barro, 1986. "Reputation in a Model of Monetary Policy with Incomplete Information," NBER Working Papers 1794, National Bureau of Economic Research, Inc.
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