Optimal Degrees of Transparency in Monetary Policymaking

TY - JOUR

T1 - Optimal Degrees of Transparency in Monetary Policymaking

AU - Jensen, Henrik

N1 - JEL Classification: E42, E52, F58

PY - 2002

Y1 - 2002

N2 - According to most academics and policymakers, transparency in monetary policymaking is desirable. I examine this proposition in a small theoretical model emphasizing forward-looking private sector behavior. Transparency makes it easier for price setters to infer the central bank's future policy intentions, thereby making current inflation more responsive to policy actions. This induces the central bank to pay more attention to inflation rather than output gap stabilization. Then, transparency may be disadvantageous. It may actually be a policy-distorting straitjacket if the central bank enjoys low-inflation credibility, and there is need for active monetary stabilization policy

AB - According to most academics and policymakers, transparency in monetary policymaking is desirable. I examine this proposition in a small theoretical model emphasizing forward-looking private sector behavior. Transparency makes it easier for price setters to infer the central bank's future policy intentions, thereby making current inflation more responsive to policy actions. This induces the central bank to pay more attention to inflation rather than output gap stabilization. Then, transparency may be disadvantageous. It may actually be a policy-distorting straitjacket if the central bank enjoys low-inflation credibility, and there is need for active monetary stabilization policy

U2 - 10.1111/1467-9442.00294

DO - 10.1111/1467-9442.00294

M3 - Journal article

SN - 0347-0520

VL - 104

SP - 399

EP - 422

JO - Scandinavian Journal of Economics

JF - Scandinavian Journal of Economics

IS - 3

ER -