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Transparency and Monetary Policy Effectiveness

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Author Info

  • Romain Baeriswyl

    (Swiss National Bank - Swiss National Bank)

  • Camille Cornand

    (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)

Abstract

This 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 Info

Paper provided by HAL in its series Post-Print with number halshs-00651028.

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Date of creation: 2011
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Publication status: Published, Annales d'Economie et de Statistique, 2011, 103-104, pp. 165-184
Handle: RePEc:hal:journl:halshs-00651028

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00651028
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Keywords: Information; monetary policy; transparency;

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Cited by:
  1. Salle, Isabelle & Yıldızoğlu, Murat & Sénégas, Marc-Alexandre, 2013. "Inflation targeting in a learning economy: An ABM perspective," Economic Modelling, Elsevier, Elsevier, vol. 34(C), pages 114-128.

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