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Transparency of Central Bank Preferences

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  • Volker Hahn

Abstract

In this paper, we examine whether the transparency of the central bank's preferences is desirable. We make two major points. First, in the literature on preference transparency variance-reduction frameworks are often adopted. As a consequence a change in the degree of transparency affects the magnitude of information asymmetries, but at the same time it implies a rather arbitrary effect on the distribution of preferences. We present a clean framework without this problem. Second, using a very general specification of shocks to the central bank's preferences, we show that society prefers transparency if it sufficiently values the employment target, whereas it prefers opacity if it estimates inflation as sufficiently important. Copyright 2008 The Author. Journal Compilation Verein für Socialpolitik and Blackwell Publishing Ltd. 2008.

Suggested Citation

  • Volker Hahn, 2009. "Transparency of Central Bank Preferences," German Economic Review, Verein für Socialpolitik, vol. 10, pages 32-49, February.
  • Handle: RePEc:bla:germec:v:10:y:2009:i::p:32-49
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    References listed on IDEAS

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    1. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-397, May.
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    7. Hans Gersbach & Volker Hahn, 2008. "Should the individual voting records of central bankers be published?," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(4), pages 655-683, May.
    8. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    9. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
    10. 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 218-235, May.
    11. Helge Berger & Marcel Thum, 2000. "News Management in Monetary Policy: When Central Banks Should Talk to the Government," German Economic Review, Verein für Socialpolitik, vol. 1(4), pages 465-493, November.
    12. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank.
    13. Beetsma, Roel M W J & Jensen, Henrik, 2003. " Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 129-136, February.
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    Cited by:

    1. Ummad Mazhar, 2013. "Does Greater Transparency Stabilize Output? Evidence from Panel Data," SBP Working Paper Series 59, State Bank of Pakistan, Research Department.
    2. Hahn, Volker, 2016. "Designing monetary policy committees," Journal of Economic Dynamics and Control, Elsevier, vol. 65(C), pages 47-67.
    3. BOKINO Régis, 2015. "Transparency in the two central banks of African franc zone: assessment and international comparison," Cahiers du GREThA 2015-22, Groupe de Recherche en Economie Théorique et Appliquée.
    4. Sánchez, Marcelo, 2009. "Monetary Union of Small Open Economies: The Role of Trasparency Misperceptions," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(4), pages 469-504.
    5. Carsten Hefeker, 2011. "Policy Uncertainty and Economic Reforms in a Monetary Union," German Economic Review, Verein für Socialpolitik, vol. 12(3), pages 274-285, August.
    6. Petra M. Geraats, 2007. "The Mystique of Central Bank Speak," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 37-80, March.
    7. Sweidan, Osama D. & Widner, Benjamin, 2008. "Transparency and central bank losses in developing countries," Research in Economics, Elsevier, vol. 62(1), pages 45-54, March.
    8. Maria Demertzis & Andrew Hughes Hallett, 2015. "Three different approaches to transparency in monetary policy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 32(3), pages 277-300, December.
    9. Malcolm Edey & Andrew Stone, 2004. "A Perspective on Monetary Policy Transparency and Communication," RBA Annual Conference Volume,in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
    10. 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.

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