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Optimal Degrees of Transparency in Monetary Policymaking
Author(s) -
Jensen Henrik
Publication year - 2002
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00294
Subject(s) - transparency (behavior) , monetary policy , credibility , economics , inflation targeting , central bank , monetary economics , inflation (cosmology) , output gap , forward guidance , price of stability , macroeconomics , credit channel , political science , physics , theoretical physics , law
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. JEL classification : E 42; E 52; F 58