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Productivity Growth, Transparency, and Monetary Policy

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  • Ichiro Muto

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: ichirou.mutou@boj.or.jp))

Abstract

In this study, we investigate how central bank transparency about views on future productivity growth influences social welfare. To this end, we use a New Keynesian framework in which both the central bank and private agents are engaged in filtering problems regarding the persistence of productivity growth. Since the central bank and private agents do not know the true value of the signal-to-noise ratio, the gain parameters used in the filtering problems can be heterogeneous. If the central bank is not transparent, private agents must conjecture the central bank's estimate of the efficient level of the real interest rate. Under this setup, we show that central bank transparency does not necessarily improve social welfare. It can potentially yield a welfare loss, depending on (i) the gain parameters used by the central bank and private agents and (ii) private agents' conjecture on the gain parameter used by the central bank. If the central bank is uncertain about the combination of these gain parameters, it is sensible for the central bank to respond strongly to the variations of the inflation rate, because the misperceptions about these parameters become the source of demand shock.

Suggested Citation

  • Ichiro Muto, 2007. "Productivity Growth, Transparency, and Monetary Policy," IMES Discussion Paper Series 07-E-08, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:07-e-08
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    Cited by:

    1. Tesfaselassie, Mewael F., 2014. "Trend growth and learning about monetary policy rules," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 241-256.
    2. Christoph S. Weber, 2017. "The Unemployment Effect of Central Bank Transparency," Working Papers 172, Bavarian Graduate Program in Economics (BGPE).
    3. Williams, Andrew, 2015. "A global index of information transparency and accountability," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 804-824.
    4. Muto, Ichiro, 2017. "The role of the reference rate in an interbank market with imperfect information," Global Finance Journal, Elsevier, vol. 34(C), pages 16-31.

    More about this item

    Keywords

    New Keynesian Model; Monetary Policy; Transparency; Productivity Growth; Learning;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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