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Monetary policy transparency: transparent about what?

  • Daniel L. Thornton

This paper puts the issue of monetary policy transparency into a broad economic perspective. In so doing, it narrows the focus from that which frequently appears in this literature. The analysis is predicated on the assertion that the sole economic argument for transparency is policy effectiveness-transparency is desirable if it enhances the effectiveness of policy and is not, if it does not. In cases where transparency neither enhances nor impairs the effectiveness of policy, the case for transparency can be argued on non-economic grounds. This analysis has implications for several policy/transparency issues. Important among these is the assumption in this literature that inflation and output must be viewed by policymakers as substitutes. I suggest that policymakers might generate a better inflation/output outcome if they thought of inflation and output objectives as complements rather than substitutes.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2002-028.

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Date of creation: 2003
Date of revision:
Publication status: Published in The Manchester School, September 2003, 71(5), pp. 478-97
Handle: RePEc:fip:fedlwp:2002-028
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  1. Daniel L. Thornton, 2004. "Tests of the expectations hypothesis: resolving the anomalies when the short-term rate is the federal funds rate," Working Papers 2000-003, Federal Reserve Bank of St. Louis.
  2. Sarno, Lucio & Thornton, Daniel L, 2002. "The Dynamic Relationship Between the Federal Funds rate and the Treasury Bill Rate: An Empirical Investigation," CEPR Discussion Papers 3225, C.E.P.R. Discussion Papers.
  3. Svensson, Lars E O, 2002. "The Inflation Forecast and the Loss Function," CEPR Discussion Papers 3365, C.E.P.R. Discussion Papers.
  4. Benjamin M. Friedman, 2002. "The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency," NBER Working Papers 8972, National Bureau of Economic Research, Inc.
  5. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers.
  6. Michael Woodford, 2001. "Monetary Policy in the Information Economy," NBER Working Papers 8674, National Bureau of Economic Research, Inc.
  7. Willem H. Buiter, 1999. "Alice in Euroland," LSE Research Online Documents on Economics 20226, London School of Economics and Political Science, LSE Library.
  8. Daniel L. Thornton, 1996. "The costs and benefits of price stability: an assessment of Howitt's rule," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 23-38.
  9. Jensen, Henrik, 2001. "Optimal Degrees of Transparency in Monetary Policymaking," CEPR Discussion Papers 2689, C.E.P.R. Discussion Papers.
  10. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  11. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 0026, European Central Bank.
  12. Alex Cukierman, 2002. "Are contemporary central banks transparent about economic models and objectives and what difference does it make?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 15-36.
  13. Bennett T. McCallum, 2001. "Monetary policy analysis in models without money," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 145-164.
  14. Daniel L. Thornton, 2000. "Money in a theory of exchange," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 35-60.
  15. William Poole, 2002. "Inflation, recession and Fed policy," Speech 46, Federal Reserve Bank of St. Louis.
  16. Daniel L. Thornton, 1982. "Simple analytics of the money supply process and monetary control," Review, Federal Reserve Bank of St. Louis, issue Oct, pages 22-39.
  17. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  18. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  19. Alvin L. Marty & Daniel L. Thornton, 1995. "Is there a case for "moderate" inflation?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 27-38.
  20. James Bullard, 1998. "Trading trade-offs?," National Economic Trends, Federal Reserve Bank of St. Louis, issue Dec.
  21. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank, Research Centre.
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