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Why money talks and wealth whispers : monetary uncertainty and mystique

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Author Info
Eijffinger, S.C.W.
Hoeberichts, M.
Schaling, E. (Tilburg University, Center for Economic Research)

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Abstract

This paper analyzes the effect of monetary uncertainty on the inflationary bias and the variance of output and inflation. Monetary policy uncertainty is modeled as a shock to the central banker s preference for inflation stabilization relative to output stabilization that cannot be observed by the public. We find that the mean and variance of inflation increase with the variance of this preference shock. However, unlike other studies, we find that monetary uncertainty may very well have a positive effect on output stabilization and therefore also on society s welfare.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 47.

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Date of creation: 1997
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Handle: RePEc:dgr:kubcen:199747

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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

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  1. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  2. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April. [Downloadable!] (restricted)
  3. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March. [Downloadable!] (restricted)
  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)
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  5. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January. [Downloadable!] (restricted)
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  6. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March. [Downloadable!] (restricted)
  7. S[empty]rensen, Jan Rose, 1991. "Political uncertainty and macroeconomic performance," Economics Letters, Elsevier, vol. 37(4), pages 377-381, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Lamla & Sarah M. Rupprecht, 2006. "The Impact of ECB Communication on Financial Market Expectations," Working papers 06-135, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  2. Lavan Mahadeva & Gabriel Sterne, . "The role of short-run inflation targets and forecasts in disinflation," Bank of England working papers 167, Bank of England. [Downloadable!]
  3. Bernhard Winkler, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 26, European Central Bank. [Downloadable!]
  4. Francisco J. Ruge-Murcia, 2001. "Inflation Targeting Under Asymmetric Preferences," Banco de España Working Papers 0106, Banco de España. [Downloadable!]
    Other versions:
  5. Sénégas, Marc-Alexandre & Vilmunen, Jouko, 1999. "The Effects of Transmission Uncertainty on the Flexibility-Credibility Tradeoff in Monetary Policy," Research Discussion Papers 14/1999, Bank of Finland. [Downloadable!]
  6. Manfred Neumann, 2002. "Transparency in monetary policy," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(4), pages 353-365, December. [Downloadable!] (restricted)
  7. Marco Hoeberichts & Mewael Tesfaselassie & Sylvester Eijffinger, 2004. "Central Bank Communication and Output Stabilization," DNB Working Papers 003, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  8. David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics. [Downloadable!]
  9. Marek Rozkrut, 2008. "It’s not only WHAT is said, it’s also WHO the speaker is. Evaluating the effectiveness of central bank communication," National Bank of Poland Working Papers 47, National Bank of Poland, Economic Institute. [Downloadable!]
  10. Ronald A. Ratti & Sang-Kun Bae, 2004. "Inflation Contracts, Inflation and Exchange Rate Targeting, and Uncertain Central Bank Preferences," Working Papers 0422, Department of Economics, University of Missouri, revised 21 Dec 2004. [Downloadable!]
  11. Malcolm Edey & Andrew Stone, 2004. "A Perspective on Monetary Policy Transparency and Communication," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia. [Downloadable!]
  12. Geraats, P.M., 2005. "The Mystique of Central Bank Speak," Cambridge Working Papers in Economics 0543, Faculty of Economics, University of Cambridge. [Downloadable!]
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  13. Giuseppe Ciccarone & Giovanni Di Bartolomeo & Enrico Marchetti, 2005. "Unions, fiscal policy and central bank transparency," Macroeconomics 0508004, EconWPA. [Downloadable!]
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  14. Malcolm Edey, 2006. "An Australian perspective on inflation targeting, communication and transparency," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 3-24 Bank for International Settlements. [Downloadable!]
  15. Seth B. Carpenter, 2004. "Transparency and monetary policy: what does the academic literature tell policymakers?," Finance and Economics Discussion Series 2004-35, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  16. Schaling, E., 1998. "The nonlinear Phillips curve and inflation forecast targetting : symmetric versus asymmetric monetary policy rules," Discussion Paper 136, Tilburg University, Center for Economic Research. [Downloadable!]
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  17. Eric Schaling, . "The non-linear Phillips curve and inflation forecast targeting," Bank of England working papers 98, Bank of England. [Downloadable!]
  18. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  19. 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. [Downloadable!] (restricted)
    Other versions:
  20. Phillip Lawler & Jonathan James, 2005. "Macroeconomic Shocks and Central Bank Disclosure Policy: Is increased Transparency Necessarily Beneficial?," Money Macro and Finance (MMF) Research Group Conference 2005 27, Money Macro and Finance Research Group. [Downloadable!]
  21. Schaling, E. & Hoeberichts, M. & Eijffinger, S., 1998. "Incentive contracts for central bankers under uncertainty: Walsh-Svensson non-equivalence revisited," Discussion Paper 11, Tilburg University, Center for Economic Research. [Downloadable!]
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