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News Management in Monetary Policy: When Central Banks Should Talk to the Government

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  • Helge Berger
  • Marcel Thum

Abstract

Central banks are often considered to be better informed about the present or future state of the economy than the government. A conservative central bank has an incentive to exploit this asymmetry by strategically managing its information policy. Strategic news management will keep the government uncertain about the state of the economy and increase the central bank's leeway for conducting a conservative monetary policy. We show that withholding information from the government is an equilibrium. However, there are also well‐defined limits to strategic information policy as the central bank has to distort monetary policy to be in line with its news management. A simple extension of our findings is that, if the government on occasion learns about the bank's true information, it will then overrule the central bank's decision on monetary policy.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:germec:v:1:y:2000:i:4:p:465-493
    DOI: 10.1111/1468-0475.00022
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    2. Eijffinger, S.C.W. & Hoeberichts, M.M. & Schaling, E., 1998. "A Theory of Central Bank Accountability," Discussion Paper 1998-103, Tilburg University, Center for Economic Research.
    3. Gersbach, Hans & Hahn, Volker, 2006. "Signaling And Commitment: Monetary Versus Inflation Targeting," Macroeconomic Dynamics, Cambridge University Press, vol. 10(5), pages 595-624, November.
    4. Pierre L. Siklos & Martin T. Bohl, 2005. "The Bundesbank's Communications Strategy and Policy Conflicts with the Federal Government," Southern Economic Journal, John Wiley & Sons, vol. 72(2), pages 395-409, October.
    5. Sebastian Gomez-Barrero & Julian A. Parra-Polania, 2014. "Central Bank Strategic Forecasting," Contemporary Economic Policy, Western Economic Association International, vol. 32(4), pages 802-810, October.
    6. Hahn Volker, 2009. "Transparency of Central Bank Preferences," German Economic Review, De Gruyter, vol. 10(1), pages 32-49, February.

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