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Accountability, Transparency, and Inflation Targeting

  • Walsh, Carl E

Inflation targeting regimes define a performance measure for the central bank. A regime that places a large (small) weight on achieving the target is analogous to a high- (low-) powered incentive scheme. High-powered incentive structures promote accountability but may distort stabilization policy. The optimal power under inflation targeting is derived under perfect and imperfect information. The fundamental trade-off between accountability and stabilization depends on the degree of transparency, defined as the ability to monitor the central bank's performance. Multiplicative uncertainty increases the optimal weight to place on achieving an inflation target.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 35 (2003)
Issue (Month): 5 (October)
Pages: 829-49

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Handle: RePEc:mcb:jmoncb:v:35:y:2003:i:5:p:829-49
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  14. Canzoneri, Matthew B & Nolan, Charles & Yates, Anthony, 1997. "Mechanisms for Achieving Monetary Stability: Inflation Targeting versus the ERM," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 46-60, February.
  15. Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
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  19. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December.
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  32. Walsh, Carl E, 1999. "Announcements, Inflation Targeting and Central Bank Incentives," Economica, London School of Economics and Political Science, vol. 66(262), pages 255-69, May.
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