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Static and Dynamic Effects of Central Bank Transparency

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  • Meixing Dai

Abstract

Using a New Keynesian framework, this paper shows that, under optimal discretion and optimal pre-commitment in a timeless perspective, imperfect transparency about the relative weight that the central bank assigns to output-gap stabilization generally reduces the average reaction of inflation to inflation shocks and the volatility of inflation, but increases these of the output gap in static and dynamic terms, and more so when inflation shocks are highly persistent. On balance, when inflation shocks are not excessively persistent, opacity could improve social welfare, more likely under pre-commitment than under discretion, if the weight assigned to output-gap stabilization is low.

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Bibliographic Info

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2012-08.

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Date of creation: 2012
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Handle: RePEc:ulp:sbbeta:2012-08

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Related research

Keywords: Central bank transparency (opacity); macroeconomic volatility; inflation expectations dynamics; speed of convergence to the equilibrium.;

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References

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  1. Blinder, Alan S. & Ehrmann, Michael & de Haan, Jakob & Fratzscher, Marcel & Jansen, David-Jan, 2008. "Central Bank communication and monetary policy: a survey of theory and evidence," Working Paper Series 0898, European Central Bank.
  2. Claudia Curi & Cinzia Daraio & Maria Patrick Llerena, 2012. "University Technology Transfer: How (in-)efficient are French universities?," DIS Technical Reports 2012-02, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  3. Christopher Crowe & Ellen E. Meade, 2007. "Central Bank Independence and Transparency: Evolution and Effectiveness," Working Papers 2007-20, American University, Department of Economics.
  4. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, December.
  5. Carin A.B. van der Cruijsen & Sylvester C.W. Eijffinger & Lex H. Hoogduin, 2008. "Optimal Central Bank Transparency," DNB Working Papers 178, Netherlands Central Bank, Research Department.
  6. Demertzis, Maria & Hughes Hallett, Andrew, 2002. "Central Bank Transparency in Theory and Practice," CEPR Discussion Papers 3639, C.E.P.R. Discussion Papers.
  7. 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.
  8. Li Qin & Eleftherios Spyromitros & Moïse Sidiropoulos, 2007. "Monetary Policy with Uncertain Central Bank Preferences for Robustness," Working Papers of BETA 2007-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  9. Eleftherios Spyromitros & Blandine Zimmer, 2007. "Monetary accommodation and unemployment: Why central bank transparency matters," Working Papers of BETA 2007-27, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  10. Eijffinger, Sylvester C W & Tesfaselassie, Mewael F., 2005. "Central Bank Forecasts and Disclosure Policy: Why it Pays to be Optimistic," CEPR Discussion Papers 4854, C.E.P.R. Discussion Papers.
  11. N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc.
  12. Ciccarone, Giuseppe & Marchetti, Enrico, 2009. "Revisiting the role of multiplicative uncertainty in a model without inflationary bias," Economics Letters, Elsevier, vol. 104(1), pages 37-39, July.
  13. Olivier Cardi & Romain Restout, 2014. "Unanticipated vs. Anticipated Tax Reforms in a Two-Sector Open Economy," Open Economies Review, Springer, vol. 25(2), pages 373-406, April.
  14. 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.
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Citations

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Cited by:
  1. Meixing Dai & Qiao Zhang, 2013. "Central bank transparency with the cost channel," Working Papers of BETA 2013-06, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  2. Raphaële Préget & Phu Nguyen-Van & Marc Willinger, 2012. "Who are the Voluntary Leaders? Experimental Evidence from a Sequential Contribution Game," Working Papers 12-34, LAMETA, Universtiy of Montpellier, revised Nov 2012.
  3. Julien Pénin, 2012. "Motivation crowding-out: Is there a risk for science?," Working Papers of BETA 2012-13, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  4. Meixing Dai & Eleftherios Spyromitros, 2009. "Accountability and Transparency about Central Bank Preferences for Model Robustness," Working Papers of BETA 2009-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  5. Olivier Cardi & Romain Restout, 2012. "Fiscal shocks in a two sector open economy with endogenous markups," Working Papers of BETA 2012-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  6. Ragip Ege & Herrade Igersheim & Charlotte Le Chapelain, 2012. "Transcendental vs. Comparative Approaches to Justice : A Reappraisal of Sen’s Dichotomy," Working Papers of BETA 2012-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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