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Uncertainty and central bank transparency: A non-Bayesian approach

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  • Laskar, Daniel

Abstract

We use a non-Bayesian approach to uncertainty, where “ambiguity” is taken into account, in order to analyze the issue of central bank transparency, and we underline that the use of such an approach may greatly change the results. We reconsider a specific argument against transparency found in the literature. We show that, in the presence of ambiguity, the argument can become a case in favor of transparency, which seems more in accordance with some stylized facts. Reduced Knightian uncertainty associated with increased transparency can contribute to making transparency beneficial.

Suggested Citation

  • Laskar, Daniel, 2012. "Uncertainty and central bank transparency: A non-Bayesian approach," Research in Economics, Elsevier, vol. 66(1), pages 82-96.
  • Handle: RePEc:eee:reecon:v:66:y:2012:i:1:p:82-96
    DOI: 10.1016/j.rie.2011.10.004
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    1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    2. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    3. 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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    6. Dai, Meixing & Sidiropoulos, Moïse, 2008. "Central bank's conservativeness and transparency," Research in Economics, Elsevier, vol. 62(4), pages 179-187, December.
    7. Gajdos, Thibault & Tallon, Jean-Marc & Vergnaud, Jean-Christophe, 2004. "Decision making with imprecise probabilistic information," Journal of Mathematical Economics, Elsevier, vol. 40(6), pages 647-681, September.
    8. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
    9. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
    10. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    11. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
    12. Gruner, Hans Peter, 2002. "How much should central banks talk?: A new argument," Economics Letters, Elsevier, vol. 77(2), pages 195-198, October.
    13. Carin van der Cruijsen & Sylvester Eijffinger, 2007. "The economic impact of central bank transparency: a survey," DNB Working Papers 132, Netherlands Central Bank, Research Department.
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    Keywords

    Central bank transparency; Knightian uncertainty; Ambiguity; Non-Bayesian approach; Political uncertainty;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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