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Is Transparency About Central Bank Plans Desirable?

  • Anne Sibert
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    A central bank with private information about its preferences has an incentive to reduce its planned inflation to increase the public's perception of its inflation aversion and lower expected future inflation. A regime is said to be transparent if planned inflation is observable and reveals the central bank's preferences and to be non-transparent if planned inflation is unobservable and can be only imperfectly inferred from actual inflation. A central bank in the non-transparent regime is said to become more transparent when actual inflation becomes a better signal of planned inflation. I find several results about transparent and non-transparent regimes: some are novel and some contrast with the results of earlier papers. In particular, I demonstrate that in a non-transparent regime, increased transparency need not improve the public's ability to infer a central bank's private information. I show that society and central banks are better off with more transparency. My numerical results suggest that society and central banks prefer the transparent to the non-transparent regimes. (JEL: E42, E52, E58) (c) 2009 by the European Economic Association.

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    Article provided by MIT Press in its journal Journal of the European Economic Association.

    Volume (Year): 7 (2009)
    Issue (Month): 4 (06)
    Pages: 831-857

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    Handle: RePEc:tpr:jeurec:v:7:y:2009:i:4:p:831-857
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