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Monetary policy transparency and inflation persistence in a small open economy

  • Meixing DAI
  • Moïse SIDIROPOULOS
  • Eleftherios Spyromitros

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 sufficiently 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 transparency.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2009-08.

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Date of creation: 2009
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Handle: RePEc:ulp:sbbeta:2009-08
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