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Political Pressures and Monetary Mystique

Listed author(s):
  • Geraats, P.M.

Central bank independence and transparency have become best practice in monetary policy. This paper cautions that transparency about economic information may not be beneficial in the absence of central bank independence. The reason is that it reduces monetary uncertainty, which could make the government less inhibited to interfere with monetary policy. In fact, a central bank could use monetary mystique to obtain greater insulation from political pressures, even if the government faces no direct cost of overriding. As a result, economic secrecy could be beneficial and provide the central bank greater political independence.

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File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe0557.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0557.

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Length: 33
Date of creation: Dec 2005
Handle: RePEc:cam:camdae:0557
Note: Ma
Contact details of provider: Web page: http://www.econ.cam.ac.uk/

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  1. Geraats Petra M., 2005. "Transparency and Reputation: The Publication of Central Bank Forecasts," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-28, February.
  2. Eijffinger, Sylvester C W & Hoeberichts, Marco, 2002. "Central Bank Accountability and Transparency: Theory and Some Evidence," International Finance, Wiley Blackwell, vol. 5(1), pages 73-96, Spring.
  3. 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.
  4. 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.
  5. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-538, June.
  6. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
  7. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  8. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
  9. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 3-20, January.
  10. S[empty]rensen, Jan Rose, 1991. "Political uncertainty and macroeconomic performance," Economics Letters, Elsevier, vol. 37(4), pages 377-381, December.
  11. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  12. Petra M. Geraats, 2007. "The Mystique of Central Bank Speak," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 37-80, March.
  13. Hans Gersbach, 2003. "On the negative social value of central banks' knowledge transparency," Economics of Governance, Springer, vol. 4(2), pages 91-102, 08.
  14. Jensen, Henrik, 2002. " Optimal Degrees of Transparency in Monetary Policymaking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 399-422, September.
  15. Hans Gersbach & Volker Hahn, 2009. "Voting Transparency in a Monetary Union," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 831-853, 08.
  16. Geraats, P.M., 2004. "Modelling Stochastic Relative Preferences," Cambridge Working Papers in Economics 0468, Faculty of Economics, University of Cambridge.
  17. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
  18. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  19. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2005. "Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033305, December.
  20. Beetsma, Roel M W J & Jensen, Henrik, 2003. " Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 129-136, February.
  21. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
  22. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
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