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Credibility, Transparency and Asymmetric Information in Monetary Policy

  • Hughes Hallett, Andrew
  • Viegi, Nicola

The literature has often commented on, but seldom explicitly analysed, the effects of a lack of transparency in monetary policy. Using a standard theoretical model where there are also opportunities for fiscal intervention, we argue that the effects of a lack of transparency will be very different depending on whether they reflect preference or goal uncertainties: that is, whether they represent a lack of political transparency or a lack of economic transparency. The former allows the Central Bank to create and exploit a 'strategic' reputation to its own advantage; the latter does not. The test that distinguishes the two cases is whether inflation forecasts are published or not. We also find that transparency is a partial, but strictly limited substitute for accountability.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2671.

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Date of creation: Jan 2001
Date of revision:
Handle: RePEc:cpr:ceprdp:2671
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