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Monetary policy transparency and inflation persistence in a small open economy

  • Dai, Meixing
  • Sidiropoulos, Moïse
  • Spyromitros, Eleftherios

Using a New Keynesian small open economy model, we examine the effects of central bank transparency on inflation persistence. We have found that more opacity could reinforce the effect of persistent shocks on the level and variability of endogenous variables if the difference between the interest elasticity of domestic goods demand and the degree of trade openness is sufficient large or sufficiently low, judging on structural parameters characterising the economy, the central bank preference and its initial degree of opacity. Our result implies that, under perfect capital mobility, a high degree of domestic financial development is a good reason for increasing the transparency.

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File URL: http://mpra.ub.uni-muenchen.de/13829/1/MPRA_paper_13829.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13829.

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Date of creation: Dec 2008
Date of revision: Mar 2009
Handle: RePEc:pra:mprapa:13829
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