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Why Adopt Transparency? The Publication of Central Bank Forecasts

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  • Geraats, Petra M.

Abstract

Recently, several central banks have abandoned the usual secrecy in monetary policy and become very transparent. This paper provides an explanation for this puzzling fact, focusing on the disclosure of central bank forecasts. It shows that transparency reduces the inflationary bias and gives the central bank greater flexibility to respond to shocks in the economy. Furthermore, it makes it easier for a central bank to build reputation. To achieve these benefits of transparency it is generally necessary to publish the conditional central bank forecasts for both inflation and output.

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Bibliographic Info

Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number qt0hw7h7cp.

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Date of creation: 04 Jul 2000
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Handle: RePEc:cdl:ciders:qt0hw7h7cp

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Keywords: transparency; monetary policy;

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  1. 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.
  2. Jensen, Henrik, 2001. "Optimal Degrees of Transparency in Monetary Policymaking," CEPR Discussion Papers 2689, C.E.P.R. Discussion Papers.
  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. 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.
  5. 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.
  6. David Backus & John Driffill, 1984. "Inflation and Reputation," Working Papers 560, Queen's University, Department of Economics.
  7. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 3-20, January.
  8. 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.
  9. Faust, Jon & Svensson, Lars E O, 1999. "The Equilibrium Degree of Transparency and Control in Monetary Policy," CEPR Discussion Papers 2195, C.E.P.R. Discussion Papers.
  10. W.H. Buiter, 1999. "Alice in Euroland," CEP Discussion Papers dp0423, Centre for Economic Performance, LSE.
  11. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  12. Tarkka, Juha & Mayes, David, 1999. "The Value of Publishing Official Central Bank Forecasts," Research Discussion Papers 22/1999, Bank of Finland.
  13. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
  14. Charles Nolan & Eric Schaling, 1996. "Monetary Policy Uncertainty and Central Bank Accountability," Bank of England working papers 54, Bank of England.
  15. repec:fth:bfdipa:22/99 is not listed on IDEAS
  16. Christina D. Romer & David H. Romer, 1996. "Federal Reserve Private Information and the Behavior of Interest Rates," NBER Working Papers 5692, National Bureau of Economic Research, Inc.
  17. 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.
  18. Hans Gersbach, 2003. "On the negative social value of central banks' knowledge transparency," Economics of Governance, Springer, vol. 4(2), pages 91-102, 08.
  19. Cukierman, A., 2000. "Accountability, Credibility, Transparency and Stabilization Policy in the Eurosystem," Papers 2000-4, Tel Aviv.
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