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Monetary Policy Delegation and Transparency of Policy Targets: A Positive Analysis

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  • Hielscher, Kai

    () (Helmut Schmidt University, Hamburg)

Abstract

We show that, in a two-stage model of monetary policy with stochastic policy targets and asymmetric information, the transparency regime chosen by the central bank does never coincide with the regime preferred by society. Independent of society’s endogenous choice of delegation, the central bank reveals its inflation target and conceals its output target. In contrast, society would prefer either transparency or opacity of both targets. As a conclusion, the choice of the transparency regime should be part of the optimal delegation solution.

Suggested Citation

  • Hielscher, Kai, 2011. "Monetary Policy Delegation and Transparency of Policy Targets: A Positive Analysis," Working Paper 113/2011, Helmut Schmidt University, Hamburg.
  • Handle: RePEc:ris:vhsuwp:2011_113
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    Keywords

    central banking; monetary policy; communication; delegation; positive analysis;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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