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The Credibility of Central Bank Announcements

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Author Info
Marco Hoeberichts () (Center for Financial Studies)

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Abstract

In this paper, we present a monetary policy game in which the central bank has a private forecast of supply and demand shocks. The public needs to form its inflationary expectations and can make use of central bank announcements. However, because of the credibility problem that the central bank faces, the public will not believe a precise announcement. By extending the arrangement proposed by Garfinkel and Oh (1995) to a model that includes private information about both demand and supply shocks, we investigate the feasibility of making imprecise credible announcements concerning the rate of inflation.

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File URL: http://www.bde.es/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0221e.pdf
File Format: application/pdf
File Function: First version, September 2002
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Publisher Info
Paper provided by Banco de España in its series Banco de España Working Papers with number 0221.

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Length: 18 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:bde:wpaper:0221

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For technical questions regarding this item, or to correct its listing, contact: (María D. González. Electronic Dissemination of Information Unit. Research Department. Banco de España).

Related research
Keywords: monetary policy; private information; announcements;

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

References listed on IDEAS
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  1. Petra M. Geraats, 2001. "Why Adopt Transparency? The Publication of Central Bank Forecasts," Macroeconomics 0012011, EconWPA. [Downloadable!]
    Other versions:
  2. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
    Other versions:
  4. Garfinkel, Michelle R. & Oh, Seonghwan, 1995. "When and how much to talk credibility and flexibility in monetary policy with private information," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 341-357, April. [Downloadable!] (restricted)
    Other versions:
  5. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December. [Downloadable!] (restricted)
    Other versions:
  6. 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. [Downloadable!] (restricted)
  7. Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999. "Using bank supervisory data to improve macroeconomic forecasts," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 21-32. [Downloadable!]
  8. 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. [Downloadable!] (restricted)
  9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November. [Downloadable!] (restricted)
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