Imperfect Transparency and Shifts in the Central Bank's Output Gap Target
AbstractIn the New Keynesian framework, the public's expectation about the future path of monetary policy is an important determinant of current economic conditions. This paper examines the impact of unobservable shifts in the central bank's output gap target on inflation and output dynamics. I show that when the degree of persistence of a shock is private information of the central bank, and policy is discretionary in nature, it is optimal for the central bank not to reveal the future expected path of the output gap target. Perfect transparency unambiguously increases inflation and output volatility and thus lowers welfare.
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Bibliographic InfoPaper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 415.
Date of creation: 2006
Date of revision: 2008
Transparency; Monetary Policy; Discretion; Commitment;
Other versions of this item:
- Westelius, Niklas J., 2009. "Imperfect transparency and shifts in the central bank's output gap target," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 985-996, April.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-03 (All new papers)
- NEP-CBA-2006-09-03 (Central Banking)
- NEP-FMK-2006-09-03 (Financial Markets)
- NEP-MAC-2006-09-03 (Macroeconomics)
- NEP-MON-2006-09-03 (Monetary Economics)
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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