Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique
This paper analyzes the effect of monetary uncertainty on the inflationary bias and the variance of output and inflation. Monetary policy uncertainty is modeled as a shock to the central banker’s preference for inflation stabilization relative to output stabilization that cannot be observed by the public. We find that the mean and variance of inflation increase with the variance of this preference shock. However, unlike other studies, we find that monetary uncertainty may very well have a positive effect on output stabilization and therefore also on society’s welfare.
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Volume (Year): 32 (2000)
Issue (Month): 2 (May)
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- Garfinkel, Michelle R. & Oh, Seonghwan, 1995.
"When and how much to talk credibility and flexibility in monetary policy with private information,"
Journal of Monetary Economics,
Elsevier, vol. 35(2), pages 341-357, April.
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- Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March. Full references (including those not matched with items on IDEAS)
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