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On Fed watching and central bank transparency in an overlapping generations model

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Author Info
Joseph H. Haslag

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Abstract

I develop a simple general equilibrium model that integrates fed watching with central bank opaqueness. With the intergenerational conflict, opaqueness can solve a Ramsey problem. With monetary uncertainty as the only source of randomness, transparency is the welfare maximizing policy. With other sources of variation, transparency is costly in the sense that it limits the central bank’s response to intrinsic shocks. In short, opaqueness is the veil that permits the central bank freedom to choose money growth in a way to raise welfare.

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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 00-02.

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Date of creation: 2001
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Handle: RePEc:fip:feddwp:00-02

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Keywords: Banks and banking; Central;

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  4. Rebelo, Sergio & Xie, Danyang, 1999. "On the optimality of interest rate smoothing," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 263-282, April. [Downloadable!] (restricted)
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  5. Cosimano, Thomas F & Van Huyck, John B, 1993. "Central Bank Secrecy, Interest Rates, and Monetary Control," Economic Inquiry, Oxford University Press, vol. 31(3), pages 370-82, July.
  6. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 353-60, July. [Downloadable!] (restricted)
  7. 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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  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. [Downloadable!] (restricted)
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  11. Helpman, Elhanan & Sadka, Efraim, 1979. "Optimal Financing of the Government's Budget: Taxes, Bonds, or Money?," American Economic Review, American Economic Association, vol. 69(1), pages 152-60, March. [Downloadable!] (restricted)
  12. Tabellini, Guido, 1987. "Secrecy of Monetary Policy and the Variability of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 425-36, November. [Downloadable!] (restricted)
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  13. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  14. Susan Athey & Andrew Atkeson & Patrick J. Kehoe, 2001. "On the optimality of transparent monetary policy," Working Papers 613, Federal Reserve Bank of Minneapolis. [Downloadable!]
  15. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  16. 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)
  17. Balke, Nathan S & Haslag, Joseph H, 1992. "A Theory of Fed Watching in a Macroeconomic Policy Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 619-28, August. [Downloadable!] (restricted)
  18. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May. [Downloadable!] (restricted)
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  19. David Cass & Menahem E. Yaari, 1966. "A Re-examination of the Pure Consumption Loans Model," Journal of Political Economy, University of Chicago Press, vol. 74, pages 353. [Downloadable!] (restricted)
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