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Central bank communication and output stabilization

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  • Marco Hoeberichts
  • Mewael F. Tesfaselassie
  • Sylvester Eijffinger

Abstract

Central banks around the world have a reputation for being secretive about their operations and market assessments. It is sometimes argued that central banks need flexibility and therefore cannot be fully transparent. We find that this explanation does not carry through in a forward-looking New Keynesian framework, where transparency about the central bank's forecasting procedures improves output stabilization. We also show that higher transparency increases optimal conservatism, as the benefits from higher transparency in terms of output stabilization are greater the more conservative is the central bank. Copyright 2009 , Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 61 (2009)
Issue (Month): 2 (April)
Pages: 395-411

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Handle: RePEc:oup:oxecpp:v:61:y:2009:i:2:p:395-411

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References

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  1. Faust, J. & Svensson, L.E.O., 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," Papers 636, Stockholm - International Economic Studies.
  2. 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.
  3. George W. Evans & Seppo Honkapohja, 2004. "Adaptive learning and monetary policy design," Macroeconomics 0405008, EconWPA.
  4. Athanasios Orphanides & Simon Van_Norden, 2000. "The Reliability of Output Gap Estimates in Real Time," Econometric Society World Congress 2000 Contributed Papers 0768, Econometric Society.
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Cited by:
  1. Ehrmann, Michael & Fratzscher, Marcel, 2005. "The timing of central bank communication," Working Paper Series 0565, European Central Bank.
  2. Pacheco, Luis, 2010. "ECB Projections: should leave it to the pros?," Working Papers 11/2010, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
  3. Dai, Meixing & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2010. "Fiscal policy, institutional quality and central bank transparency," MPRA Paper 23766, University Library of Munich, Germany.
  4. 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.
  5. Menguy, Séverine, 2006. "Les limites du cadre institutionnel européen," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(3), pages 395-418, septembre.
  6. James, Jonathan G. & Lawler, Phillip, 2010. "Macroeconomic shocks, unionized labour markets and central bank disclosure policy: How beneficial is increased transparency?," European Journal of Political Economy, Elsevier, vol. 26(4), pages 506-516, December.

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