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Monetary policy transparency: transparent about what?

  • Daniel L. Thornton

This paper puts the issue of monetary policy transparency into a broad economic perspective. In so doing, it narrows the focus from that which frequently appears in this literature. The analysis is predicated on the assertion that the sole economic argument for transparency is policy effectiveness-transparency is desirable if it enhances the effectiveness of policy and is not, if it does not. In cases where transparency neither enhances nor impairs the effectiveness of policy, the case for transparency can be argued on non-economic grounds. This analysis has implications for several policy/transparency issues. Important among these is the assumption in this literature that inflation and output must be viewed by policymakers as substitutes. I suggest that policymakers might generate a better inflation/output outcome if they thought of inflation and output objectives as complements rather than substitutes.

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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 71 (2003)
Issue (Month): 5 (09)
Pages: 478-497

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Handle: RePEc:bla:manchs:v:71:y:2003:i:5:p:478-497
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  1. Cukierman, Alex, 2001. "Are Contemporary Central Banks Transparent about Economic Models and Objectives and What Difference Does it Make?," Discussion Paper Series 1: Economic Studies 2001,05, Deutsche Bundesbank, Research Centre.
  2. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  3. Jensen, Henrik, 2001. "Optimal degrees of transparency in monetary policymaking," Discussion Paper Series 1: Economic Studies 2001,04, Deutsche Bundesbank, Research Centre.
  4. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  5. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers.
  6. Daniel L. Thornton, 1996. "The costs and benefits of price stability: an assessment of Howitt's rule," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 23-38.
  7. Alvin L. Marty & Daniel L. Thornton, 1995. "Is there a case for "moderate" inflation?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 27-38.
  8. Michael Woodford, 2001. "Monetary Policy in the Information Economy," NBER Working Papers 8674, National Bureau of Economic Research, Inc.
  9. W.H. Buiter, 1999. "Alice in Euroland," CEP Discussion Papers dp0423, Centre for Economic Performance, LSE.
  10. Lucio Sarno & Daniel L. Thornton, 2002. "The dynamic relationship between the federal funds rate and the Treasury bill rate: an empirical investigation," Working Papers 2000-032, Federal Reserve Bank of St. Louis.
  11. Svensson, Lars E O, 2002. "The Inflation Forecast and the Loss Function," CEPR Discussion Papers 3365, C.E.P.R. Discussion Papers.
  12. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank, Research Centre.
  13. repec:ner:tilbur:urn:nbn:nl:ui:12-88701 is not listed on IDEAS
  14. Daniel L. Thornton, 2000. "Money in a theory of exchange," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 35-60.
  15. Daniel L. Thornton, 2004. "Tests of the expectations hypothesis: resolving the anomalies when the short-term rate is the federal funds rate," Working Papers 2000-003, Federal Reserve Bank of St. Louis.
  16. Bennett T. McCallum, 2001. "Monetary Policy Analysis in Models Without Money," NBER Working Papers 8174, National Bureau of Economic Research, Inc.
  17. James Bullard, 1998. "Trading trade-offs?," National Economic Trends, Federal Reserve Bank of St. Louis, issue Dec.
  18. William Poole, 2002. "Inflation, recession and Fed policy," Speech 46, Federal Reserve Bank of St. Louis.
  19. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  20. Benjamin M. Friedman, 2002. "The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency," NBER Working Papers 8972, National Bureau of Economic Research, Inc.
  21. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 0026, European Central Bank.
  22. Daniel L. Thornton, 1982. "Simple analytics of the money supply process and monetary control," Review, Federal Reserve Bank of St. Louis, issue Oct, pages 22-39.
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