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What kind of central bank competence?

Author

Listed:
  • Frankel, Alex

    (Booth School of Business, University of Chicago)

  • Kartik, Navin

    (Department of Economics, Columbia University)

Abstract

How much information should a Central Bank (CB) have about (i) policy objectives and (ii) operational shocks to the effect of monetary policy? We consider a version of the Barro-Gordon credibility problem in which monetary policy signals an inflation-biased CB's private information on both these dimensions. We find that greater CB competence---more private information---about policy objectives is desirable while greater competence about operational shocks need not be. When the CB has less private information about operational shocks, the public infers that monetary policy depends more on the CB's information about objectives. Inflation expectations become more responsive to monetary policy, which mitigates the CB's temptation to produce surprise inflation.

Suggested Citation

  • Frankel, Alex & Kartik, Navin, 2018. "What kind of central bank competence?," Theoretical Economics, Econometric Society, vol. 13(2), May.
    • Handle: RePEc:the:publsh:2290
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    References listed on IDEAS

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    Cited by:

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    2. Hwang, In Do & Lustenberger, Thomas & Rossi, Enzo, 2021. "Does communication influence executives’ opinion of central bank policy?☆," Journal of International Money and Finance, Elsevier, vol. 115(C).
    3. Gáti, Laura, 2023. "Monetary policy & anchored expectations—An endogenous gain learning model," Journal of Monetary Economics, Elsevier, vol. 140(S), pages 37-47.
    4. Christopher D. Cotton, 2022. "Looking Beyond the Fed: Do Central Banks Cause Information Effects?," Working Papers 22-21, Federal Reserve Bank of Boston.
    5. In Do Hwang & Dr. Enzo Rossi, 2020. "Does communication influence executives' opinion of central bank policy?," Working Papers 2020-17, Swiss National Bank.

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    More about this item

    Keywords

    Information disclosure; signaling; inflation bias; credibility;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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