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Interest Rate Signals and Central Bank Transparency

In: NBER International Seminar on Macroeconomics 2007

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  • Pierre Gosselin
  • Aileen Lotz
  • Charles Wyplosz

Abstract

The present paper extends the literature on central bank transparency that relies on information heterogeneity among private agents in four directions. First, it adds the interest rate to the list of signals that the central bank can reveal. Second, it allows for more than one economic fundamental. Third, it extends the range of uncertainties that matter. So far the literature has focused on uncertainty about the economic fundamentals, assumed to be estimated with known precision; we also allow for uncertainty about precision. Fourth, it derives results that are general in the sense that they do not depend on any particular social welfare criterion. Each extension sheds new light on the role of central bank transparency.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:

  • Richard Clarida & Francesco Giavazzi, 2009. "NBER International Seminar on Macroeconomics 2007," NBER Books, National Bureau of Economic Research, Inc, number clar07-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 2997.

    Handle: RePEc:nbr:nberch:2997

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    References

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    1. Hyun Song Shin & Jeffery D. Amato, 2003. "Public and Private Information in Monetary Policy Models," Computing in Economics and Finance 2003 38, Society for Computational Economics.
    2. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
    3. Alex Cukierman, 2007. "The limits of transparency," Proceedings, Federal Reserve Bank of San Francisco.
    4. 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.
    5. 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.
    6. Carl E. Walsh, 2007. "Optimal Economic Transparency," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 5-36, March.
    7. Christian Hellwig, 2004. "Heterogeneous Information and the Benefits of Public Information Disclosures (October 2005)," UCLA Economics Online Papers 283, UCLA Department of Economics.
    8. Jeffrey D. Amado & Stephen Morris & Hyun Song Shin, 2003. "Communication and Monetary Policy," Cowles Foundation Discussion Papers 1405, Cowles Foundation for Research in Economics, Yale University.
    9. Geraats Petra M., 2005. "Transparency and Reputation: The Publication of Central Bank Forecasts," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-28, February.
    10. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
    11. John C. B. Cooper, 2004. "Dollarisation in Theory and Practice," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 5(4), pages 79-89, October.
    12. Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
    13. Charles Bean, 2005. "Monetary Policy in an Uncertain World," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 6(1), pages 31-53, January.
    14. Stephen Morris & Hyun Song Shin, 2005. "Central Bank Transparency and the Signal Value of Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 1-66.
    15. Vickers, John, 1986. "Signalling in a Model of Monetary Policy with Incomplete Information," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 443-55, November.
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    Cited by:
    1. Cruijsen, C.A.B. van der & Eijffinger, S.C.W. & Hoogduin, L.H., 2008. "Optimal Central Bank Transparency," Discussion Paper 2008-59, Tilburg University, Center for Economic Research.
    2. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-45, December.
    3. Hayo, Bernd & Neuenkirch, Matthias, 2010. "Do Federal Reserve communications help predict federal funds target rate decisions?," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1014-1024, December.
    4. Benjamin Born & Michael Ehrmann & Marcel Fratzscher, 2011. "Macroprudential policy and central bank communication," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential regulation and policy, volume 60, pages 107-110 Bank for International Settlements.
    5. Florin Cornel DUMITER & Horatiu Florin SOIM, 2012. "Bank of England’s monetary policy committee – assessing the importance and the implication upon monetary policy," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 61-67, May.
    6. Pierre Gosselin & Aileen Lotz & Charles Wyplosz, 2008. "The Expected Interest Rate Path: Alignment of Expectations vs. Creative Opacity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 145-185, September.
    7. repec:use:tkiwps:1205 is not listed on IDEAS
    8. Clemens J.M. Kool & Daniel L. Thornton, 2012. "How effective is central bank forward guidance?," Working Papers 2012-063, Federal Reserve Bank of St. Louis.
    9. 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.
    10. Alan S. Blinder, 2008. "Talking about Monetary Policy: The Virtues (and Vices?) of Central Bank Communication," Working Papers 1048, Princeton University, Department of Economics, Center for Economic Policy Studies..
    11. Neuenkirch, Matthias, 2013. "Central bank transparency and financial market expectations: The case of emerging markets," Economic Systems, Elsevier, vol. 37(4), pages 598-609.
    12. Jakob de Haan & David-Jan Jansen, 2009. "The communication policy of the European Central Bank: An overview of the first decade," DNB Working Papers 212, Netherlands Central Bank, Research Department.

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