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Imperfect transparency and the strategic use of information: an ever present temptation for central bankers?
Author(s) -
Hallett Andrew Hughes,
Viegi Nicola
Publication year - 2003
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00364
Subject(s) - transparency (behavior) , temptation , reputation , economics , politics , monetary policy , perfect information , exploit , monetary economics , public economics , microeconomics , political science , computer security , law , computer science , psychology , social psychology
Most economists argue that transparency in monetary policy is desirable because it helps the private sector make better informed decisions. They also argue that a lack of transparency has been a key problem in Europe's monetary policy. Using standard models—where there are also opportunities to use fiscal policy—we show that a lack of transparency will have very different effects depending on whether it represents a lack of political transparency or a lack of economic (or information) transparency. The former allows the central bank to create and exploit a ‘strategic’ reputation to its own advantage. The latter does not. Thus, political transparency helps us understand how monetary policy decisions are made. But economic transparency would reveal what information went into those decisions.