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Transparency and monetary policy: what does the academic literature tell policymakers?

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  • Seth B. Carpenter
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    Abstract

    Transparency in monetary policy has become a popular topic over the past decade. However, the majority of the economic research is theoretical, calling into question its value as a practical guide to monetary policy. This paper surveys the literature to assess what conclusions a central bank can draw from the academic study of transparency and how beneficial transparency may be.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2004-35.

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    Date of creation: 2004
    Date of revision:
    Handle: RePEc:fip:fedgfe:2004-35

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    Keywords: Transparency in government ; Monetary policy;

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    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.:
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    1. Rudin, Jeremy R., 1988. "Central bank secrecy, `fed watching', and the predictability of interest rates," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 317-334, September.
    2. Walsh, Carl E, 1999. "Announcements, Inflation Targeting and Central Bank Incentives," Economica, London School of Economics and Political Science, vol. 66(262), pages 255-69, May.
    3. Jon Faust & Lars E.O. Svensson, 1998. "Transparency and credibility: monetary policy with unobservable goals," International Finance Discussion Papers 605, Board of Governors of the Federal Reserve System (U.S.).
    4. Jensen, Henrik, 2001. "Optimal Degrees of Transparency in Monetary Policymaking," CEPR Discussion Papers 2689, C.E.P.R. Discussion Papers.
    5. Geraats, Petra M., 2001. "Why adopt transparency? The publication of central bank forecasts," Working Paper Series 0041, European Central Bank.
    6. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2001. "Does it pay to be transparent? International evidence from central bank forecasts," Bank of England working papers 143, Bank of England.
    7. 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.
    8. W.H. Buiter, 1999. "Alice in Euroland," CEP Discussion Papers dp0423, Centre for Economic Performance, LSE.
    9. Cosimano, Thomas F & Van Huyck, John B, 1993. "Central Bank Secrecy, Interest Rates, and Monetary Control," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 370-82, July.
    10. Cukierman, Alex, 2001. "Are Contemporary Central Banks Transparent about Economic Models and Objectives and What Difference Does it Make?," Discussion Paper Series 1: Economic Studies 2001,05, Deutsche Bundesbank, Research Centre.
    11. Eijffinger, Sylvester C W & Hoeberichts, Marco & Schaling, Eric, 2000. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(2), pages 218-35, May.
    12. Alan S. Blinder, 1999. "Central Bank Credibility: Why Do We Care? How Do We Build It?," NBER Working Papers 7161, National Bureau of Economic Research, Inc.
    13. Eijffinger, Sylvester C.W. & Geraats, Petra M., 2006. "How transparent are central banks?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 1-21, March.
    14. Lewis, Karen K, 1991. "Why Doesn't Society Minimize Central Bank Secrecy?," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 403-15, July.
    15. Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
    16. Laurence Ball & Niamh Sheridan, 2003. "Does Inflation Targeting Matter?," NBER Working Papers 9577, 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. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
    19. Hahn, Volker & Gersbach, Hans, 2001. "Voting Transparency and Conflicting Interests in Central Bank Councils," Discussion Paper Series 1: Economic Studies 2001,03, Deutsche Bundesbank, Research Centre.
    20. Kenneth N. Kuttner & Adam S. Posen, 1999. "Does talk matter after all? Inflation targeting and central bank behavior," Staff Reports 88, Federal Reserve Bank of New York.
    21. 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.
    22. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
    23. 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.
    24. Hans Gersbach, 2003. "On the negative social value of central banks' knowledge transparency," Economics of Governance, Springer, vol. 4(2), pages 91-102, 08.
    25. Stephen Morris & Hyun Song Shin, 2001. "The CNBC Effect: Welfare Effects of Public Information," Cowles Foundation Discussion Papers 1312, Cowles Foundation for Research in Economics, Yale University.
    26. Tarkka, Juha & Mayes, David, 1999. "The Value of Publishing Official Central Bank Forecasts," Research Discussion Papers 22/1999, Bank of Finland.
    27. repec:fth:bfdipa:22/99 is not listed on IDEAS
    28. 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.
    29. Benjamin M. Friedman, 2002. "The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency," NBER Working Papers 8972, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:
    1. Christopher W. Crowe, 2006. "Testing the Transparency Benefits of Inflation Targeting: Evidence from Private Sector Forecasts," IMF Working Papers 06/289, International Monetary Fund.
    2. Cruijsen, C.A.B. van der & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency: A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.
    3. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
    4. Michael Belongia, 2007. "Opaque rather than transparent: Why the public cannot monitor monetary policy," Public Choice, Springer, vol. 133(3), pages 259-267, December.
    5. Rozkrut, Marek & Rybinski, Krzysztof & Sztaba, Lucyna & Szwaja, Radoslaw, 2007. "Quest for central bank communication: Does it pay to be "talkative"?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 176-206, March.
    6. 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.
    7. Novak Kondić & Borivoje D. Krušković, 2012. "Transparency analysis in the function of central bank objective," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 1(1), pages 77-90.
    8. Michael Lamla & Sarah M. Rupprecht, 2006. "The Impact of ECB Communication on Financial Market Expectations," KOF Working papers 06-135, KOF Swiss Economic Institute, ETH Zurich.
    9. Giuseppe Ciccarone & Enrico Marchetti & Giovanni Di Bartolomeo, 2007. "Unions, Fiscal Policy And Central Bank Transparency," Manchester School, University of Manchester, vol. 75(5), pages 617-633, 09.
    10. Carsten Hefeker, 2006. "EMU Enlargement, Policy Uncertainty and Economic Reforms," CESifo Working Paper Series 1767, CESifo Group Munich.
    11. Guembel, Alexander & Rossetto, Silvia, 2009. "Reputational cheap talk with misunderstanding," Games and Economic Behavior, Elsevier, vol. 67(2), pages 736-744, November.
    12. Marcel Peter & Scott Roger & Geoffrey Heenan, 2006. "Implementing Inflation Targeting: Institutional Arrangements, Target Design, and Communications," IMF Working Papers 06/278, International Monetary Fund.

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