Transparency and Monetary Policy Effectiveness
AbstractThis article analyses the effects of economic transparency on the optimal monetary policy in an economy affected by demand shocks. In an environment of imperfect common knowledge, demand shocks create a trade-off between stabilising the price level and stabilising the output gap. The monetary policy implemented by the central bank tends, on the one hand, to offset demand shocks but, on the other hand, to distort the economy because of its mistaken view of the fundamental state of the economy. Transparency is optimal as long as the central bank does not weight the stabilisation of the output gap too heavily in its objective function.
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Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00651028.
Date of creation: 2011
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Publication status: Published, Annales d'Economie et de Statistique, 2011, 103-104, pp. 165-184
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00651028
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Web page: http://hal.archives-ouvertes.fr/
Information; monetary policy; transparency;
Other versions of this item:
- NEP-ALL-2012-04-23 (All new papers)
- NEP-CBA-2012-04-23 (Central Banking)
- NEP-MAC-2012-04-23 (Macroeconomics)
- NEP-MON-2012-04-23 (Monetary Economics)
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